The German auto maker announced yesterday that it planned to end negotiations with U.S. regulators over the diesel emissions scandal by pleading guilty and agreeing to a fine of $4.3 billion.
Volkswagen said that it was currently in "advanced" talks with the U.S Department of Justice and the Customs and Border Protection over a number of ongoing criminal investigations related to the company's diesel emissions scandal in the United States. And, to put an end to the rumours, the company officially confirmed that it prepared to pay the regulators $4.3 billion in settlements.
On top of the hefty fine, the German auto maker is also expected to plead guilty to the criminal charges of the American authorities that include serious violations of the Clear Air Act, obstruction of justice and fraud, among others, says the New York Times. The experts say that even though it is a common practice for corporations to settle over large fines with the authorities, it does not happen so often that a company actually pleads guilty of a criminal wrongdoing. Admitting to breaking the law makes Volkswagen much more vulnerable to other state investigations both in the U.S. and abroad as well as to shareholder lawsuits.
Together with the $4.3 billion settlement that includes both criminal and civil fines, the total costs of the Dieselgate scandal for Volkswagen in the U.S. amount to $20.5 billion, what makes it officially the worst scandal in Volkswagen's 79-year history and one of the worst disputes in the corporate world. Bloomberg adds that the total costs of settlements are far larger than what Volkswagen initially prepared for. For the U.S. and Canadian markets, the auto maker set aside $19.2 billion to cover the costs of the dispute while the settlement amounts in the two markets have already reached $23 billion.
The final decision will be made today during a meeting of the company's boards.
"The final conclusion of the settlement agreement is still subject to the approval by the Management Board and the Supervisory Board of Volkswagen AG and by the competent corporate bodies of further Group Companies involved. The competent corporate bodies will deal with this issue in the very short term, possibly even during today, the 10 January or tomorrow, the 11 January," the company wrote in the statement.
Several experts said that the yesterday's announcement came in earlier than expected as the negotiations between the company and the regulators have been going on for months. Reuters said that it seems that Volkswagen "raced" to settle the dispute with the Department of Justice in the last days of Obama's administration, since waiting for the change of the administration could further delay the final agreement.
"The most important news is that VW managed to come to an agreement that allows the company to move on from here. It’s a major relief that this doesn’t get dragged into the new U.S. administration," Evercore ISI analysts told Reuters.
In turn, Volkswagen is only one of the companies that received final approvals of their settlements with the U.S. investigators during the last months of Obama's administration. Likewise, in December, Deutsche Bank settled for a fine of $7.2 billion over the case of mis-selling of mortgage-based securities in the U.S., which the analysts explained by the government's rush to settle such disputes before the President-elect Trump enters the office.
In 2015, the car manufacturer admitted that it installed cheating devices in more than 550,000 vehicles that were imported to the U.S. from Germany and Mexico. Those devices allowed the vehicles to show better numbers of diesel emissions when tested in laboratory conditions than they actually performed on the road. It was concluded that as many as 11 million cars could be affected worldwide. When the secret software was uncovered, the company was dragged into one of the most expensive and disastrous scandals in the industry's history.
"The funds won’t fully compensate owners who thought they were buying a better vehicle, but it is a strong step toward ensuring Volkswagen won’t try to cheat again. Volkswagen chose to poison our families with dangerous pollution just to pad its pocketbook,” wrote Kathryn Phillips of California's Sierra Club, as reported by the Los Angeles Times.
In addition to the news of the upcoming settlement with the Department of Justice, the company made headlines on Monday when one of its top executives, Oliver Schmidt, was arrested by the FBI during his trip to the United States. Schmidt was charged with participating in fraudulent activities and withholding information on the cheating devices installed in the cars. Reuters reported that he was arrested on his way back to Germany.
"In the presentation, VW employees assured VW executive management that U.S. regulators were not aware of the defeat device. Rather than advocate for disclosure of the defeat device to U.S. regulators, VW executive management authorized its continued concealment," FBI wrote in the complaint, as reported by Reuters.
However, the fact that Volkswagen is nearing an agreement with the U.S. authorities over the diesel emissions scandal means that it could finally clean up the biggest part of its disputes in the U.S and at least partially recover from the damages.