U.S. charges Volkswagen executive with fraud over emissions scandal

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By Zachary Fagenson and David Shepardson | MIAMI/DETROIT

MIAMI/DETROIT Volkswagen AG suffered
a new setback on Monday when an executive was charged with
conspiracy to defraud the United States over the company’s
diesel emissions cheating and the automaker was accused of
concealing the cheating from regulators.

Oliver Schmidt, who was general manager in charge of VW’s
environmental and engineering office in Michigan, did not enter
a plea at an initial appearance in U.S. District Court in Miami on Monday and was ordered held pending a hearing on Thursday by
U.S. Magistrate Judge William C. Turnoff.

Schmidt, who was shackled and wearing a jail uniform, was
charged with fraud and conspiracy in not disclosing a cheating
device used to rig U.S. diesel emissions tests from 2006 through

He was arrested on Saturday in Florida after attempting to
return to Germany from a vacation there, the Justice Department
said. Schmidt’s lawyer David Massey said Schmidt had learned of
the investigation and reached out to the U.S. Federal Bureau of
Investigation to offer to cooperate. Schmidt then met with FBI
agents in London last year, he said.

The arrest was first reported by the New York Times.

The arrest and court appearance come as VW nears a $3
billion-plus settlement with the Justice Department and
Environmental Protection Agency, which sources have told Reuters
could be announced as soon as Wednesday.

An FBI complaint unsealed on Monday against Schmidt said he
and other VW employees told executive management about the “existence, purpose and characteristics” of an emissions
cheating device in July 2015, and that the executives chose not
to immediately disclose it to U.S. regulators.

The FBI complaint accused VW of deliberately misleading
regulators about cheating pollution tests in the United States,
but did not charge the company with a crime.

Schmidt and other employees gave a presentation about the “defeat device” on or about July 27, 2015, more than a month
before the automaker disclosed the device to U.S. regulators in
September 2015, the complaint said.

The cheating allowed nearly 580,0000 of VW’s U.S. diesel
vehicles sold since 2009 to emit up to 40 times legally
allowable pollution levels.

“In the presentation, VW employees assured VW executive
management that U.S. regulators were not aware of the defeat
device,” the complaint said. “Rather than advocate for
disclosure of the defeat device to U.S. regulators, VW executive
management authorized its continued concealment.”

One slide in the presentation included “Indictment?” if
regulators did not approve its diesel software for 2016 models,
according to the complaint.

Volkswagen said it could not comment on an ongoing legal
matter. Hinrich Woebcken, VW’s chief executive of the North
America region, told reporters at the Detroit auto show on
Monday that the automaker was “surprised” by the criminal

A U.S. VW employee, James Liang, was charged in September
and pleaded guilty to misleading regulators about diesel
emissions and agreed to cooperate with the investigation. His
sentencing was delayed last week as prosecutors consider
charging others, a court filing said.


The news comes as VW is trying to convince Americans it has
changed its ways. The world’s second-largest automaker
emphasized its focus on the U.S. market as it rolled out two new
sport utility vehicles at the Detroit auto show, including a new
longer Tiguan SUV with more cargo space and a larger all-new
Atlas SUV that will be built in Tennessee.

“We intend to take that second chance,” Woebcken told
reporters who joined VW in January 2016. “We are on a good path
to get things straight” and added that VW is a “good corporate

He said VW employs 600,000 people worldwide and they “are
honest people” and that it was “unfortunate that a small group
of people generated this disappointment.”

Much of the company’s senior management departed following the scandal, including CEO Martin Winterkorn.

But the allegations in the FBI filing show how difficult it
is proving for VW to draw a line under the biggest business
scandal in its 80-year history almost 16 months after it broke.

On Monday, however, VW shares rose 4.2 percent to their
highest since September 2015 on optimism about the expected U.S.
criminal settlement, topping the German blue-chip DAX index
. The shares are still 10 percent below pre-scandal

VW admitted in September 2015 to installing the secret defeat
device software in hundreds of thousands of U.S. diesel cars to
cheat exhaust emissions tests and make them appear cleaner than
they were on the road, and that up to around 11 million vehicles
could have similar software installed worldwide.

The automaker initially blamed a small group of “rogue
engineers” for the test-cheating, and has repeatedly said no
current or former board members were involved.

The ensuing scandal has cost the company more than $18.9
billion in provisions and forced it to drop its diesel offensive
in the United States. VW’s global brand chief Herbert Diess told
reporters on Sunday the company has no plans to ever resume U.S.
diesel sales.

VW has already agreed to spend up to $17.5 billion in the
United States to address claims from regulators, dealers, and

Separately on Monday, a British law firm launched legal
action against VW seeking thousands of pounds of compensation
each for UK drivers affected by the emissions scandal.

In Britain, Europe’s second-biggest auto market, 1.2 million
cars are affected and Harcus Sinclair UK, which is being
supported by Slater and Gordon, said around 10,000 drivers had
already signed up to the legal action before the launch. (Additional reporting by Jan Schwartz in Detroit and Ilona
Wissenbach in Frankfurt)

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