More VW Executives Could Be Charged, Court Documents Suggest

Jack Ewing; Neal E. Boudette contributed reporting.
David Gray | Reuters

The hunt for the people behind Volkswagen's emissions scandal did not end with the company's plea bargain this week.

There was the man identified in court documents only as ''Supervisor B,'' who overruled nervous subordinates and told them to develop the illegal software. Don't get caught, he told them, according to the documents.

There was ''Attorney A,'' who, as regulators closed in, urged co-workers to destroy any emails that mentioned the ''acoustic function,'' the code name for emissions cheating software.

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The two suspects were conspicuously missing from the group of six Volkswagen executives indicted on Wednesday -- a clear indication that there could be more criminal charges, further eroding the company's reputation and destabilizing management. There is little doubt that investigators will lean on suspects to testify against others, and push as high up in Volkswagen's organization chart as the evidence allows.

The $20 billion that Volkswagen is paying to resolve civil and criminal charges — including obstruction of justice and conspiracy to defraud the United States government — is unlikely to be the end of the story.

Even as the settlement removed a major source of uncertainty for the company, other cases loom. Shareholder lawsuits in the United States and Europe could cost an additional $10 billion.

United States authorities also signaled that investigators will not be constrained by national boundaries. Five of the six people indicted on Wednesday are believed to be in Germany.

The cost of the United States settlements drains cash that Volkswagen urgently needs to adapt to technological upheaval. Self-driving cars, car-sharing services and other innovations are expected to upend the industry.

The settlement ''is an important step that will help Volkswagen to win back trust in the United States,'' said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen. But the cost, he said, ''will set back Volkswagen's plans and in my opinion require cuts in investment in the United States.''

Volkswagen clearly hoped the settlement would be the turning point that allows it to begin rebuilding its shattered reputation. The company issued publicity photographs this week of a shiny replacement for the blue and white ''VW'' logo that for decades has stood like a giant hood ornament atop Volkswagen's high-rise executive offices in its hometown, Wolfsburg.

''Volkswagen deeply regrets the behavior that gave rise to the diesel crisis,'' Matthias Müller, its chief executive, said in a statement. ''Since all of this came to light, we have worked tirelessly to make things right for our affected customers.''

But the settlement — and the admissions made by the company in the deal — leave Volkswagen vulnerable in other ways.

Volkswagen pleads guilty in emissions scam
Volkswagen pleads guilty in emissions scam

As part of an agreement that calls for Volkswagen to pay $4.3 billion in penalties and plead guilty to violations of the Clean Air Act, the company signed off on a detailed account of how the cheating software came into being, and how Volkswagen employees tried to cover it up after regulators' suspicions were aroused.

The document portrays a broad conspiracy that included engine developers, software experts, quality control managers, in-house lawyers and people responsible for emissions compliance. The account of the wrongdoing reinforces the view that Volkswagen corporate culture was seriously awry. Employees who raised objections to the wrongdoing were overruled by those higher up.

In 2012, for example, senior executives rebuffed a group of Volkswagen engineers who had discovered the illegal software. The engineers were told to destroy documents they had prepared showing how the software worked, according to a federal indictment unsealed this week.

Instead of coming clean after regulators began asking questions in 2014, Volkswagen executives mounted a full-blown cover-up. Ahead of a meeting with California regulators in August 2015, according to the plea agreement, Volkswagen officials even drew up a script for what they would say to conceal the illegal software and win approval for new models to go on sale.

Such evidence could be used to bolster other cases. Shareholders in the United States and Europe have filed lawsuits saying Volkswagen had a duty to warn much sooner of the potential financial havoc that would be caused by the official investigations. Company shares plunged after the scandal came to light and have not fully recovered.

Further charges could also wreak havoc on the upper ranks. The document does not directly implicate members of the Volkswagen management board, but it does not exonerate them either. Several of the people indicted reported directly to Martin Winterkorn, the Volkswagen chief executive until he resigned in the wake of the scandal.

There was some good news for Volkswagen. The maximum penalty just for the criminal violations would have been $34 billion, according to Department of Justice calculations. Volkswagen received a discount for being cooperative after its initial stonewalling, and for the nearly $16 billion it is paying to owners of Volkswagen diesels, dealers and others as compensation.

The deal was the product of weeks of late-night negotiations by representatives for the government and Volkswagen, all of whom were eager to resolve the case before President-elect Donald J. Trump takes office.

Volkswagen sales have been holding up even though the company's reputation has taken a beating. Volkswagen said this week that it sold 10.3 million vehicles worldwide in 2016, a 4 percent increase over 2015.

But Volkswagen's market share in Europe, which accounts for about a third of sales, slipped during the year to 24 percent from 25 percent. And the company continues to struggle in the United States. Sales of Volkswagen brand cars fell 8 percent last year to 323,000 vehicles, though there were signs of a rebound toward the end of the year.

It will be difficult for anyone associated with the scandal to rest easy. The specter of further indictments and arrests, along with the bad publicity they generate, is likely to weigh on company morale, if not its financial prospects.

Top managers are not immune. German prosecutors have said they consider Hans Dieter Pötsch, chairman of the Volkswagen supervisory board, a suspect in a related investigation into possible violations of securities laws.

Volkswagen said in a statement that its management board ''duly fulfilled its disclosure obligation under German capital markets law.'' Mr. Pötsch was a member of the management board before becoming chairman of the supervisory board, an oversight panel, in October 2015.

Germany does not usually extradite its own citizens. But any employees indicted by United States authorities risk arrest if they travel outside Germany, even to other European countries.

Unusually, only one member of the Volkswagen management board attended the North American International Auto Show, a major industry event that is underway in Detroit. Herbert Diess, head of the unit that produces Volkswagen brand cars, who joined the company shortly before the scandal came to light, was the highest ranking company executive in Detroit.

Volkswagen said in a statement that the smaller presence was the result of ''a critical assessment of the efficiency and effectiveness'' of its car show activities.

Volkswagen had hoped to use the Detroit auto show to reconnect with American consumers. It showed off the Atlas, a sport utility vehicle with three rows of seats that will be made at Volkswagen's plant in Chattanooga, Tenn., and fill a gap in the company's lineup.

Mr. Diess tried to sound upbeat. ''We want to reignite America's love for Volkswagen,'' he said.