Ex-Volkswagen CEO Winterkorn charged in U.S. over diesel scandal

[May 04, 2018]   By David Shepardson and Edward Taylor

WASHINGTON/FRANKFURT (Reuters) - The U.S. Justice Department has filed criminal charges against former Volkswagen AG <VOWG_p.DE> Chief Executive Martin Winterkorn, accusing him of conspiring to cover up the German automaker's diesel emissions cheating.

The indictment, filed in secret in March, was unsealed in U.S. District Court on Thursday as Volkswagen held its annual meeting in Germany. Winterkorn resigned days after the scandal over polluting vehicles in the United States became public in September 2015.

U.S. Attorney General Jeff Sessions, Environmental Protection Administration chief Scott Pruitt and other senior Trump administration official issued statements criticizing VW with the indictment, a rare instance of a CEO being subjected to criminal prosecution for corporate actions.

"If you try to deceive the United States, then you will pay a heavy price," Sessions said.

In contrast with Volkswagen, no individuals were charged at Toyota Motor Corp in connection with its sudden unintended acceleration scandal or at General Motors Co for the cover-up of a deadly ignition switch defect.

The federal government's decisions not to prosecute senior banking industry executives over the 2007-2009 financial crisis also has drawn fire from advocates of tougher measures to deter corporate wrongdoing.

STAYING PUT

The U.S. indictment of Winterkorn is likely to be largely symbolic. As a German citizen, he is almost certain not to go to the United States and to seek protection under German extradition law. The former CEO is also under investigation by German authorities.

A source close to Winterkorn told Reuters on Friday that Winterkorn is in Germany, and will remain there.

Volkswagen settled criminal charges with the U.S. Justice Department in 2017 and agreed to a $4.3 billion payment. In total, VW has agreed to spend more than $25 billion in the United States to address claims from owners, environmental regulators, states and dealers.

The company also has offered to buy back about 500,000 polluting U.S. vehicles. Many are now stored in parking lots around the United States.

Volkswagen has been fighting to move past the emissions scandal, vowing to spend billions on a number of new electric vehicles as it has seen U.S. sales rebound.

The indictment reopens the question of whether other senior VW executives knew about the scandal and threatens to prolong the crisis. VW shares slipped 0.2 percent by 0915 GMT.

Winterkorn, 70, is charged with four felony counts, including conspiracy to defraud the United States, wire fraud and violating the Clean Air Act from at least May 2006 through November 2015 after the company admitted using illicit software that allowed Volkswagen diesel vehicles to emit excess pollution without detection.

A lawyer for Winterkorn in Germany did not immediately comment. Winterkorn in January 2017 told German lawmakers he had not been informed of the cheating early and would have halted it had he been aware.

A Volkswagen spokesman in Germany said the company "continues to cooperate with investigations" of individuals but would not comment on Thursday's charges.

MANAGEMENT CHANGES

Three executives who were on the management board of Volkswagen at the time the scandal broke continue to hold senior positions within the company.

Hans-Dieter Poetsch, who was chief financial officer, is now chairman of the supervisory board. Herbert Diess now the company's chief executive, joined VW on July 1, 2015 as head of the Volkswagen brand only weeks before authorities blew the whistle on pollution on September 18, 2015.

Former Volkswagen chief executive Martin Winterkorn leaves after testifying to a German parliamentary committee on the carmaker's emissions scandal in Berlin, Germany, January 19, 2017. REUTERS/Hannibal Hanschke

Rupert Stadler, who was head of the Audi brand in 2015, has been given additional responsibilities for group sales in a revamp announced by Diess last month. Bernd Osterloh, the company's powerful labor chief who also sits on the VW supervisory board, is still in place.

Volkswagen has said that the decision to install illegal software manipulation devices to disguise real-world pollution levels, was taken in 2006 below management board level.

"None of the members of the board of management had, at that time and for many years to follow, knowledge of the development and implementation of this software function," Volkswagen said in its 2017 annual report.

Volkswagen has never commented on when individual management board members learned about the defeat devices. VW eventually disclosed to U.S. authorities that it had used illegal software in its cars on September 3, 2015.

Volkswagen did not inform investors until the U.S. Environmental Protection Agency alerted the public on September 18. VW chose not to disclose earlier because it felt the matter could be resolved amicably with U.S. authorities, the annual report said.

"TOP OF THE COMPANY"

Sessions said in a statement that the charges against Winterkorn showed that "Volkswagen's scheme to cheat its legal requirements went all the way to the top of the company."

The indictment describes a July 27, 2015 meeting at which Volkswagen employees presented PowerPoint slides to Winterkorn and "other senior VW AG management at an in-person meeting at VW's headquarters in Wolfsburg." The meeting provided a "clear picture" of how the company was deceiving U.S. regulators about software used to rig emissions tests of Volkswagen diesel vehicles, it said.

The indictment also alleges that VW employees recommended the company seek to get approval for 2016 diesel models from U.S. regulators without revealing the existence of the cheating software. Winterkorn agreed to the plan, the indictment said.

The indictment also states that Winterkorn was informed of the emissions cheating by a memo sent in May 2014. Winterkorn has said he did not learn of the cheating until late August 2015.

VW's new chief executive on Thursday in Berlin, Herbert Diess, vowed to make the carmaker "more honest" as it fights to recover from the diesel emissions scandal, but wary investors called for outside vetting of steps to restore its reputation.

Volkswagen had initially suggested that only lower-level executives knew of the diesel emissions cheating. But the indictment alleges Winterkorn was informed of VW’s misconduct in May 2014 and in July 2015 and he agreed with other senior VW executives "to continue to perpetrate the fraud and deceive U.S. regulators," prosecutors said.

In total, nine people have been charged and two former Volkswagen executives have pleaded guilty in the case and been sentenced to prison terms. One Italian citizen, former Audi manager Giovanni Pamio, is in Germany awaiting extradition.

Six former Volkswagen executives charged, including Winterkorn, are believed to be in Germany and have avoided facing U.S. prosecutors.

(Additional reporting by Jan Schwartz in Hamburg; editing by G Crosse, Tom Brown and Keith Weir)

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