By William Boston in Berlin, Mike Spector in Detroit and Aruna Viswanatha in Washington
Volkswagen AG, in a historic settlement, is expected as early as Wednesday to agree to plead guilty to criminal wrongdoing and pay a $4.3 billion penalty to resolve a U.S. Justice Department probe of the German auto giant's diesel-emissions cheating.
Volkswagen said in a disclosure to financial markets on Tuesday that it had agreed to a draft settlement with the Justice Department and U.S. customs authorities. If completed, as expected, the unusually severe punishment would resolve the final significant U.S. government action expected against Volkswagen stemming from its emissions cheating.
The German auto maker, which Tuesday also claimed the throne as the world's biggest car maker by sales, admitted in 2015 that it had rigged nearly 11 million diesel vehicles world-wide, including some 600,000 in the U.S., to cheat on emissions tests. The cars produced toxic tailpipe emissions up to 40 times allowable limits during normal road use. The company's admission set off a whirlwind of civil litigation and a criminal investigation into the company and many of its senior executives.
Volkswagen has already agreed to pay up to $17.5 billion to address civil claims with consumers, regulators, dealers and state attorneys general in the U.S. Now, in an unprecedented resolution for a criminal case involving an automotive company, Volkswagen is expected to plead guilty to charges of conspiring to defraud the U.S., commit wire fraud and violate the Clean Air Act; obstruction of justice; and violating import rules, according to people familiar with the situation.
Toyota Motor Corp. and General Motors Co. in recent years resolved criminal cases stemming from fatal safety failures and each agreed to deferred-prosecution agreements under which the government pledged to later seek to dismiss charges as long as the companies complied with the deals' terms. Both those auto makers admitted to their safety failures, expressed regret and promised reforms. Toyota paid a $1.2 billion penalty to settle its criminal case; GM paid $900 million.
Prosecutors believe the Volkswagen case is different. In past cases involving coverups of violations, auto makers sought to conceal problems after they emerged. But the U.S. government accused Volkswagen, which launched its "clean diesel" campaign a decade ago, of setting out from the beginning to carry outa bold, systematic fraud that it sustained over many years.
And once U.S. environmental authorities began to suspect that Volkswagen was cheating, the company organized a well-orchestrated and aggressive coverup, prosecutors have alleged in related cases against individuals, misleading authorities for nearly a year and a half before finally admitting to using illegal software to game the system.
Ultimately, prosecutors view Volkswagen's transgressions as a worse offense than attempting to cover up problems after the fact, according to people familiar with the matter. The result for Volkswagen is a fine that is several billion dollars more than the other auto makers faced.
"To understand the different outcomes in this case as opposed to those cases, the answer lies in the premeditation and conscious decision by so many actors to knowingly violate U.S. law. Not just a violation of law, but a lasting systematic fraud and then a cover up. This is pretty systematic and intentional," said a person familiar with the investigation.
Volkswagen has taken EUR18.2 billion ($19.2 billion) in provisions to pay for the legal costs and penalties associated with the diesel scandal in the U.S. Volkswagen said Tuesday that the agreement, if reached, would "lead to a financial expense that exceeds the current provisions."
In a sign of how Volkswagen has been humbled by its diesel crisis, its sales statement Tuesday makes no mention of hitting its long-held target of taking first place in global sales. Volkswagen said Tuesday that world-wide sales of its various brands rose 3.8% last year, to 10.3 million vehicles, despite the diesel crisis and economic troubles in emerging markets. In December alone, the company's sales surged nearly 12% compared with December 2015, to 933,300 vehicles.
The draft settlement must still be approved by the U.S. government, Volkswagen's executive management and its supervisory board, which is made up of key shareholders -- the heirs of the original Beetle designer Ferdinand Porsche, the German state of Lower Saxony, Qatar's sovereign-wealth fund -- as well as representatives of the powerful IG Metall trade union.
The deal, which includes appointment of an independent monitor to audit the company's compliance practices, and publication of a statement of facts by the Justice Department, is expected to be approved on Wednesday, according to people familiar with the situation.
A guilty plea by Volkswagen would be notable. While criminal investigations of corporations aren't uncommon, guilty pleas are rare. BP PLC pleaded guilty to charges in 2012 in the wake of the Deepwater Horizon oil spill that killed 11 people, and in 2014 Credit Suisse pleaded guilty to conspiracy for helping U.S. taxpayers hide offshore accounts from the Internal Revenue Service. In 2015, five banks, including Citigroup Inc. and J.P. Morgan Chase & Co., pleaded guilty to charges related to a currency-rigging investigation. "There is a stigma that comes with a criminal conviction," said Laurie Levenson, a professor at Loyola Law School in Los Angeles.
A guilty plea at the corporate level can send a powerful symbolic message and hurt a company's reputation, though the logistics of such a deal can play out the same as if the government stopped short of getting the plea, said Samuel Buell, a Duke Law professor.
"The public perception is that it means something," Mr. Buell said, but on a practical level, deals involving guilty pleas and those involving deferred-prosecution agreements or other alternatives can carry similar punishments, such as fines or agreements to change company behavior. In some industries, he said, having a criminal conviction could affect a company's ability to hold government contracts or do other business with government agencies.
Volkswagen's expected settlement, which includes criminal and civil fines, comes days after Federal Bureau of Investigation agents arrested a Volkswagen executive, Oliver Schmidt, accused of conspiring to defraud the U.S. in the auto maker's emissions-cheating scandal. Mr. Schmidt was arrested at Miami International Airport as he prepared to fly home to Germany, according to a Justice Department official. He appeared in a Miami federal court Monday and is currently being detained pending another hearing set for Thursday.
Another Volkswagen employee, James Liang, pleaded guilty last year to conspiring to defraud the U.S., commit wire fraud and violate the Clean Air Act for his role in helping the auto maker's emissions cheating and agreed to help prosecutors in their continuing investigation.
The resolution of criminal charges against Volkswagen doesn't preclude U.S. authorities from continuing to pursue individual executives. In the criminal complaint against Mr. Schmidt, authorities often referred to co-conspirators, suggesting that the FBI is preparing cases against additional individuals believed to have been involved in the diesel fraud.
--Sara Randazzo contributed to this article.
Write to William Boston at email@example.com, Mike Spector at firstname.lastname@example.org and Aruna Viswanatha at Aruna.Viswanatha@wsj.com
(END) Dow Jones Newswires
January 10, 2017 19:51 ET (00:51 GMT)
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