Economy First Look

FBI arrests Volkswagen executive over diesel emissions scandal

The arrested Volkswagen executive Oliver Schmidt, who headed VW of America's regulatory compliance office from 2014 to March 2015, for wire fraud and conspiracy to defraud the US government.

This photo provided by the Broward County Sheriff's Office shows Oliver Schmidt under arrest on Saturday. Mr. Schmidt, the general manager of the engineering and environmental office for Volkswagen America, was arrested in connection with the company's emissions-cheating scandal.
Broward County Sheriff's Office/AP
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The FBI arrested a Volkswagen executive in Florida over the weekend, bringing the criminal investigation into the emissions cheating scandal into the German automaker’s top ranks.

Oliver Schmidt, the former top emissions compliance manager for Volkswagen in the United States, was arrested on a charge of conspiracy to defraud the United States, The New York Times first reported on Monday. The FBI accuses Mr. Schmidt of playing a central role in the conspiracy to keep US regulators from discovering diesel vehicles made by the company were programmed with so-called defeat devices to cheat on emissions tests.

Schmidt is the second Volkswagen employee to be arrested in a scandal that has cost the company billions of dollars in both sales and settlement money, as well as tarnished its reputation worldwide. Volkswagen has admitted wrongdoing and agreed to dole settlement money totaling in the billions to hundreds of thousands of individual car owners. But the arrest of Schmidt marks a shift in the scandal, as the previous employee arrested was an engineer, not an executive.  

Schmidt’s arrest also comes as rumors are circulating that other Volkswagen executives refused to come to this year’s North American International Auto Show, which is taking place this week in Detroit, for fear of being arrested.

Herbert Deiss, a member of Volkswagen AG’s board of management, wouldn’t comment on the rumors when he appeared in Detroit on Sunday evening to introduce a new version of VW’s Tiguan SUV.

“I’m here, at least,” he said, according to the Associated Press.

Schmidt was arrested on Saturday by investigators in Florida, the government said Monday. He faces an initial hearing in Miami on Monday afternoon, and will likely be taken to Detroit to face arraignment at a later date.

Schmidt’s responsibilities at VW included ensuring vehicles built for sale within the United States and Canada comply with “past, present and future air quality and fuel economy government standards in both countries,” according to his biography for a 2012 auto industry conference. The bio says he served as the company’s direct factory and government agency contact for emissions regulations.

But FBI investigators say that through that role, Schmidt was a key player in the emissions scandal, in which Volkswagen admitted to installing software in diesel engines of VW and Audi models. The software turned on only when the engine sensed it was being tested. In real-world driving, vehicles programmed with the software emitted nitrogen oxide up to 40 times the amount allowed under the Clean Air Act.

Schmidt deceived American regulators “by offering reasons for the discrepancy other than the fact that VW was intentionally cheating on US emission tests, in order to allow VW to continue to sell diesel vehicles in the United States,” a sworn affidavit from FBI Special Agent Ian Dinsmore reads. The affidavit was used as the basis for Schmidt’s arrest, according to the Times.

For more than a year after researchers at West Virginia University first raised questions over the diesel motors in 2014, Schmidt and other VW officials repeatedly cited false technical explanations for the discrepancy. Only in September 2015 did the company admit the cars were programmed to cheat the tests.

The first VW employee to be arrested on charges of conspiracy was a VW engineer in southern California, James Liang. Mr. Liang pleaded guilty in September to charges that included conspiracy to defraud the federal government and violating the Clean Air Act. He faces up to five years in federal prison.

Liang’s grand jury indictment shows a 10-year conspiracy by Volkswagen employees in the US and Germany to trick US regulators by using the emissions software. According to the Associated Press, the indictment detailed emails between Liang and coworkers that “initially admitted to cheating in an almost cavalier manner but then turned desperate after the deception was uncovered.”

Volkswagen has already agreed to pay up to nearly $16 billion to resolve civil claims in the largest consumer class-action settlement ever in the US. It is also awaiting approval of another settlement agreement with the US Justice Department to pay more than $2 billion to resolve the criminal investigation. The company or one of its corporate entities is expected to plead guilty as part of the deal, according to The New York Times. 

In South Korea, a Volkswagen executive only identified by his surrname Yun was sentenced on Jan. 6 to one year and six months for "fabricating documents on emissions and noise-level tests to achieve certification for vehicles for import," Reuters reported.

This report contains material from the Associated Press and Reuters. 

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