Tom Fox on VW: The cost of a ‘strategy of delay and obfuscation’

Still wondering what the cost of a culture of non-compliance might be? Earlier this month Volkswagen announced it would delay reporting its annual earnings and move back the date of its annual shareholders’ meeting because of uncertainty about the cost of its diesel emissions scandal.

As reported in the New York Times, “The delays reflect the company’s problems from the fallout of its admission in September that it had equipped 11 million diesel vehicles with software that could enable them to cheat on emissions tests.”

After having its stock tank over 30 percent from the initial fallout from the scandal, this next earnings report should be quite revealing.

A second story in the New York Times reported allegations that may be not only costlier but more troubling.

The Times said an “internal memo and emails suggest that company executives pursued a strategy of delay and obfuscation with United States regulators after being confronted with evidence that VW diesel vehicles were emitting far more pollutants than allowed.”

Moreover, the story noted that “the documents also raise the possibility that Martin Winterkorn, Volkswagen’s chief executive at the time, knew of possible emissions cheating by the company sooner than he has said.” A colleague of the former CEO wrote to him in May 2014 alerting him to the defeat device at the center of the emissions-testing scandal. That was 18 months before Winterkorn said he learned of the defeat device.

These details could further dampen VW stock and lead to costlier fines and penalties if regulators determine that senior management engaged in specific deception or approved it. The Yates Memo talks about the requirement for culpable individuals to turn over evidence to receive any cooperation credit going forward.

There is also the spectre of shareholder actions. The Times quoted Christian Rother, a Berlin lawyer who is representing car owners in suits against Volkswagen, who said “The question will be, at what moment in time did Volkswagen management know? If top managers knew earlier than they claim, he said, “the shareholders have a good case.”

This week Reuters reported that Volkswagen through its counsel told a federal judge at a court hearing that it is making progress in senior level settlement talks with the U.S. Justice Department, Environmental Protection Agency, and California to reach a resolution over excess emissions in nearly 600,000 diesel vehicles.

Judge Charles Breyer told VW he wants a definite answer by March 24 from the parties on whether the sides have found an acceptable fix for the vehicles.

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Thomas Fox is a contributing editor of the FCPA Blog and a Compliance Week columnist. He’s the founder of the Houston-based boutique law firm tomfoxlaw.com. A popular speaker on compliance and risk-management topics, Fox is also the creator and writer of the widely followed FCPA Compliance Report. His book Lessons Learned on Compliance and Ethics topped Amazon’s bestseller list for international law. He can be contacted here.