One of the highest-profile corporate scandals of 2015 has continued to plague German automaker Volkswagen in 2016, as the U.S. Department of Justice has now sued the company in federal court. The January 4, 2015 civil suit follows the revelations in September 2015 that Volkswagen had installed software created to subvert emissions tests in 11-million of its diesel vehicles worldwide. Since then, Volkswagen’s stock has been buffeted by sell-offs and downgrades, and is trading nearly 25% lower than pre-scandal prices. The DOJ civil suit is the latest blow to the company, which now faces fines in the order of billions of dollars, regulatory investigations and class actions in several jurisdictions, including Canada.
The U.S. Government’s complaint against Volkswagen and various related entities, including car makers Audi and Porsche, was brought under the Clean Air Act, the stated purpose of which is to protect human health and the environment by reducing emissions. The Clean Air Act and its regulations prohibit the use of so-called “defeat devices”, which reduce the effectiveness of a vehicle’s emission control system. The complaint alleges that Volkswagen used such defeat devices in hundreds of thousands of its diesel automobiles sold in the U.S. In addition, the complaint alleges that Volkswagen “knowingly concealed” facts that would have revealed its use of the devices over the course of regulatory investigations that took place in 2014 and earlier.
The DOJ is seeking, among other things, civil penalties of up to $37,500 per vehicle under the Clean Air Act, which brings the theoretical aggregate amount of the claim to more than $19-billion (though any total penalty that Volkswagen might one day be ordered to pay would very likely be much less). Notably, federal prosecutors did not go so far as to launch criminal charges against the company or any of the individuals alleged to have been involved, notwithstanding the U.S. federal government’s recent pledge to increase crack downs on executives responsible for corporate wrongdoing.
Even without criminal sanctions in the U.S., considerable damage has been done to Volkswagen’s brand and reputation, and to its bottom line. The scope and profile of the scandal has made it one of the largest ever in the automotive sector and a cautionary tale for companies of all sizes operating in all markets.