Volkswagen Supplier to Face Criminal Case in Emissions Fraud

01/31/18 07:06 AM EST
By Aruna Viswanatha and Mike Spector 

A supplier for Volkswagen AG is in discussions with the U.S. Justice Department to resolve an impending criminal case arising from its alleged participation in the German auto giant's emissions cheating, according to people familiar with the matter, as federal prosecutors maintain pressure on automotive companies for environmental violations.

IAV GmbH, an engineering company based in Berlin, is expected in the coming months to face allegations that it aided Volkswagen in the auto maker's nearly decadelong conspiracy to rig diesel-powered vehicles with illegal software that allowed them to dupe U.S. government emissions tests and then pollute far beyond legal limits on the road, the people said.

The supplier, half-owned by Volkswagen and with U.S. operations in Northville, Mich., is currently negotiating a settlement with federal prosecutors and has argued it has limited resources to address any potential financial penalties as part of the case, they said.

IAV and Volkswagen declined to comment. A Justice Department spokeswoman said in a statement: "While we cannot confirm or deny the existence of an investigation, the Justice Department is committed to holding both corporations and individuals accountable to the rule of law, and to protecting U.S. consumers and the environment."

Volkswagen, which last year pleaded guilty to criminal charges in the emissions fraud, has agreed to pay penalties eclipsing $20 billion in the U.S. to settle legal cases with federal prosecutors, regulators, state attorneys general and customers. The total includes a $2.8 billion criminal penalty. Volkswagen's final legal tab in the U.S. will depend on how many customers ultimately accept the auto maker's offers to repurchase tainted vehicles. Volkswagen earlier this week suspended its chief lobbyist in the wake of revelations the company had conducted experiments on animals and humans to disprove links between diesel fumes and respiratory illnesses.

The negotiations over the criminal case against IAV, the Volkswagen supplier, are the latest in an unprecedented government crackdown on automotive companies for emissions violations that began during the Obama administration and has continued under President Donald Trump. The Trump administration, even while rolling back Obama-era environmental policies and regulations, has taken a hard line on automotive firms accused of deceiving government regulators charged with policing vehicle emissions.

In January 2017, just before Mr. Trump's inauguration, Volkswagen agreed to plead guilty to engaging in a conspiracy spanning 2006 to 2015 to evade emissions requirements. Volkswagen admitted employees conspired to create software called defeat devices that would dupe government emissions tests because the auto maker couldn't design a diesel engine that both complied with U.S. environmental regulations and could attract customer demand.

Eight individuals also have been charged in criminal investigations of Volkswagen. Two have pleaded guilty, and the rest are believed to be outside the U.S.

Federal prosecutors and regulators have continued to pursue other automotive firms for alleged emissions transgressions. The Justice Department sued Fiat Chrysler Automobiles NV in a civil case in May that accused the Italian-U.S. auto maker of using illegal emissions-cheating software, similar to the kind Volkswagen employed. The company allegedly installed the software in roughly 104,000 2014-2016 model-year Ram pickup trucks and Jeep Grand Cherokee sport-utility vehicles with diesel engines. The auto maker is in settlement discussions with regulators and customers and expects to be able to soon fix vehicles to address officials' concerns, lawyers have said in court proceedings.

Fiat Chrysler and Daimler AG's Mercedes-Benz, meanwhile, are both under criminal investigation in the U.S. for alleged emissions violations, as is Robert Bosch GmbH, which provided components Volkswagen used in its emissions cheating, according to people familiar with the matter and court records. No cases against those companies are imminent, the people said.

Both Fiat Chrysler and Daimler have denied using defeat devices, the type of illegal emissions software Volkswagen used. The auto makers declined to comment further.

A Bosch spokeswoman said the supplier takes allegations of manipulating diesel software "very seriously" and is cooperating with investigations and defending itself in civil litigation.

IAV, meanwhile, was referred to in an earlier indictment of a Volkswagen engineer who received a 40-month prison sentence after pleading guilty to helping the auto maker evade emissions requirements, according to people familiar with the matter. IAV is "Company A," an unnamed firm referenced in the indictment that allegedly worked with the engineer to create defeat devices for Volkswagen, these people said.

In November 2006, a "Company A" employee submitted a request on Volkswagen's behalf for a software design change "that would become the defeat device," the indictment alleged. Volkswagen owned 50% of the company's shares and was its largest customer at the time of the June 2016 indictment, according to court documents.

--William Boston contributed to this article.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Mike Spector at mike.spector@wsj.com

 

(END) Dow Jones Newswires

January 31, 2018 07:06 ET (12:06 GMT)

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