Volkswagen Now Faces Possible Criminal Charges for Cheating on Emissions Tests

The Volkswagen emissions-rigging scandal has shifted into high gear, as company officials have admitted that up to 11 million diesel vehicles worldwide included software intended to evade air-quality testing.

And, according to Bloomberg, the US Department of Justice has opened a criminal probe, which could result in charges against the company under criminal provisions of the US Clean Air Act or more general statutes against fraud.

The fallout from the original notice of violation, announced by the US Environmental Protection Agency (EPA) on Friday, has grown to include investigations by German officials, authorities from the European Commission, and the environment ministry in South Korea, where diesel vehicles account for 90 percent of VW sales, according to Bloomberg.

The added investigations are bringing insult to injury, as the company recoils from potential fines of $18 billion from US authorities. Over two days, shares in the company have plummeted 38 percent, according to Bloomberg, with $17 billion being wiped from the company's value on Monday alone. With share prices and the company's image in apparent free fall, Reuters reported that the days of company CEO Martin Winterkorn may be numbered.

Michael Horn, president and chief executive of Volkswagen Group of America, said the company was "dishonest" with government agencies and the public.

"And in my German words: We have totally screwed up," he told a Brooklyn, New York audience gathered at the company's launch of the 2015 Passat.

"This is a black eye for VW," said Don Anair, the research and deputy director of the Clean Vehicles Program at the Union of Concerned Scientists. "It is extremely disappointing that they would choose to try to cheat the test, rather than make vehicles that perform."

At the center of the scandal is software, installed in upwards of 500,000 diesel vehicles, that was able to detect when the car was undergoing an official emissions test. The so-called "defeat device" would limit car emissions for the duration of the test. Once it had concluded, however, the car would return to emitting nitrogen oxides, linked to asthma and respiratory illness, at levels up to 40 times the legal limit.

It was the California Air Resources Board (CARB) that originally made the discovery, which was working with the International Council on Clean Transportation (ICCT) on research commissioned by the European Commission. The study was focused on discrepancies between recorded emissions tests and on-road performance data from diesel vehicles.

"We knew it was happening, but we didn't know why," said Stanley Young, communications director for the CARB, which has a unique authority to establish its own standards under the federal Clean Air Act. "We called in VW, and they continued to challenge our data. Eventually, they ran out of explanations and had to admit that there was a defeat device."

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The CARB will level its own penalties against VW, but it is working closely with the EPA, which issued a federal notice of violation for the company on Friday. In its citation, the agency said that the company had systematically placed the devices in four-cylinder Audi and Volkswagen diesel models since 2009. The discovery could cost Volkswagen up to $37,500 per vehicle for the violations, for a total of $18 billion dollars. For the time being, it has halted sales in the United States and issued a mandatory recall of all affected vehicles, including the VW Jetta, Beetle, Golf, and Passat, as well as the Audi A3.

In a statement issued by the EPA, Cynthia Giles, the assistant administrator at the EPT's Office of Enforcement and Compliance Assurance, called the intentional circumvention of federal emissions tests "illegal" and "a threat to public health."

The company immediately responded to the allegations on Friday, stating that it was "committed to fixing the issue as soon as possible," and adding that Volkswagen was fully cooperating with the investigation. On Sunday, the CEO of Volkswagen, Martin Winterkorn, issued his own statement, personally apologizing for breaking the trust of customers and the public, adding that they "do not and will not tolerate violations of any kind of our internal rules of the law."

German authorities have demanded that the company provide them with proof that they were not evading emissions tests at home. Representatives from the European Commission have also contacted the company. While diesel vehicles are estimated to account for less than 1 percent of US auto sales in 2014, the Union of Concerned Scientists estimates that they could be emitting between 10 to 25 percent of all nitrogen oxide emissions from passenger vehicles. In Germany, by comparison, diesel sales account for an estimated 48 percent.

"This is strange to have this happening so late in the game," said Rich Alonso, a partner with Bracewell and Giuliani LLP, a law firm specializing in cases related to the Clean Air Act. Defeat device cases, he explained, got a lot of bad press in the 1970s and 1980s. "Auto manufacturers know better, because the defeat device concept in auto manufacturing is well known — every one knows you're not allowed to do it and that if you do, you're subject to recalls and fines."

The use of defeat devices, he explained, is intended to boost car performance. With such a device installed, the energy and fuel that normally would go to running the pollution control devices would instead be able to give the car added horsepower and acceleration, which consumers like.

Some scientists, however, warn that this violation could have the effect of giving diesel a bad name, despite the fact that clean diesel technologies have been successfully developed.

"Those cars passed certification, and they can function with those limits," said Young. "What we want is for them to function as well in the real world as they do on the test bench."

Related: The Obama Administration Just Sent the Auto Industry a Tough Message About Climate Change

In 2007, the EPA reduced the allowable amount of nitrous oxide emissions as part of the so-called Tier 2 Program aimed at getting emissions from diesel vehicles on par with those burning gasoline. The new regulations forced Volkswagen and other diesel auto manufacturers to suspend production until 2009. It was this same year, according to the EPA, that the company systematically introduced the defeat device, reintroducing the cars onto the market with ostensibly lowered emissions.

"It's not just enough to fine VW for cheating on the emissions test," Anair said. "It's important, whatever happens, that they send a crystal clear signal that this behavior is not allowed and that it will be punished."

California is moving at full speed to move the recalled cars into compliance, which will require Volkswagen to remove the software that was disabling the emission controls. But as the investigation spreads to Europe, the story may be far from over. According to Alonso, the company will have to decide how to proceed with the case, opting to litigate or settle, which would allow them to avoid a lengthy trial that would come at a cost to its public image.

Alonso said the violation was unlikely to jeopardize the company's future.

"The EPA is not in the business of creating undo hardship on companies or shutting them down – that's not what they do," he said. "It will be a significant penalty, yes, but it will be something that works for both the EPA and Volkswagen."

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