U.S. Sues Fiat Chrysler for Fraud in Emis­sions Cer­ti­fi­ca­tions

Trillions - - In This Issue -

Fiat Chrysler is be­ing sued by the U.S. De­part­ment of Jus­tice for rig­ging its emis­sions tests on 104,000 diesel ve­hi­cles sold since 2014.

The suit, which was filed in the U.S. District Court in De­troit on May 23, ac­cuses the com­pany of in­stalling spe­cial “de­feat de­vices” in Fiat Chrysler diesel ve­hi­cles pro­duced be­tween 2014 and 2016. Th­ese de­vices were never dis­closed to the gov­ern­ment (as re­quired by law). They not only vi­o­lated rules by be­ing un­de­clared but also al­lowed what the law­suit says were sub­stan­tially-higher-than-al­low­able lev­els of ni­tro­gen ox­ide (NOX), a pol­lu­tant that cre­ates lung-health prob­lems on its own and also con­trib­utes to smog.

If Fiat Chrysler is found guilty, the law­suit de­mands that it fix all af­fected ve­hi­cles, bans it from sell­ing any cars that emit higher-than-le­gal NOX emis­sions and re­quires it to pay civil penal­ties that could run to around $4.6 bil­lion.

VM Mo­tori S.P.A., a sep­a­rate busi­ness unit of Fiat Chrysler that de­signed the en­gine that is the fo­cus of the in­ves­ti­ga­tions, was also named as a de­fen­dant in this le­gal ac­tion. The En­vi­ron­men­tal Pro­tec­tion Agency and the Jus­tice De­part­ment have ap­par­ently al­ready seized doc­u­ments from VM Mo­tori that sug­gest se­ri­ous is­sues of plan­ning and in­tent in the mat­ter. The spe­cific part of VM Mo­tori that was in­volved was housed at the head­quar­ters for Fiat Chrysler in Michi­gan. Be­sides be­ing hit with this civil suit, Fiat Chrysler is also the sub­ject of crim­i­nal in­ves­ti­ga­tions by the Jus­tice De­part­ment on the same is­sues. If those in­ves­ti­ga­tions con­vert to an­other set of le­gal ac­tions, this time they could in­volve spe­cific in­di­vid­u­als within the com­pany. Charges could in­volve is­sues “be­fore the fact” (crim­i­nal con­spir­acy in the plan­ning stages for the fraud), “dur­ing” (for those di­rect­ing and/or in­volved in the fraud as it was hap­pen­ing) and “af­ter the fact” (cover-up charges).the civil suit and crim­i­nal in­ves­ti­ga­tions build on charges by the State of Cal­i­for­nia and the En­vi­ron­men­tal Pro­tec­tion Agency for Fiat Chrysler al­legedly us­ing spe­cial soft­ware to al­low three years’ pro­duc­tion of Jeep Grand Chero­kees and Dodge Ram 1500 trucks to al­low higher-than-legally-al­lowed ex­cess diesel emis­sions.

Other law­suits have also been filed by af­fected ve­hi­cle own­ers and some Fiat Chrysler auto deal­ers. The most sig­nif­i­cant of th­ese so far have oc­curred in Cal­i­for­nia.

Com­par­i­son with the Volk­swa­gen Diesel Emis­sions Scan­dal

In both raw num­bers and au­dac­ity, the Fiat Chrysler emis­sions-fix­ing mess is much smaller than the one Volk­swa­gen ad­mit­ted to just a few years ago.

In that case, VW had pro­duced ap­prox­i­mately 500,000 diesel cars for the U.S. mar­ket and 10.5 mil­lion ad­di­tional on a global ba­sis, all of which had prob­lems sim­i­lar to the al­le­ga­tions in the Fiat Chrysler case.

Those cars included their own brand of “de­feat de­vices,” units that mod­i­fied set­tings un­der EPA test modes and even had the ca­pa­bil­ity to de­tect steer­ing, throt­tle and other things used in the tests.

What VW had de­signed was a clever means of in­clud­ing two com­pletely dif­fer­ent forms of op­er­a­tion for their diesel ve­hi­cles. In “test” mode, the soft­ware ad­justed the set­tings so ev­ery­thing was in full com­pli­ance. In “driv­ing” mode, items such as in­jec­tion tim­ing, fuel pres­sure, ex­haust re­cir­cu­la­tion pa­ram­e­ters and the amount of urea fluid sprayed into the ex­haust were al­tered sig­nif­i­cantly. In that driv­ing mode, the en­gines could pro­duce as much as 40 times the fed­er­ally al­lowed limit for NOX emis­sions.

Be­sides the sheer num­ber of cars af­fected by the fraud, the va­ri­ety of cars VW pro­duced that were pro­duc­ing ex­cess diesel emis­sions was also stag­ger­ing. The EPA cited the fol­low­ing list of VW ve­hi­cles that it had mea­sured as not hav­ing passed emis­sions reg­u­la­tions – ve­hi­cles pro­duced dur­ing the pe­riod in which the de­feat de­vices were in place:

• 2009–2015 Volk­swa­gen Jetta 2.0L TDI

• 2010–2015 Volk­swa­gen Golf 2.0L TDI

• 2010–2015 Audi A3 2.0L TDI

• 2012–2015 Volk­swa­gen Bee­tle 2.0L TDI

• 2012–2015 Volk­swa­gen Pas­sat 2.0L TDI

• 2009–2015 Audi Q7 3.0L V-6 TDI

• 2009–2016 Volk­swa­gen Touareg 3.0L V-6 TDI

• 2013–2016 Porsche Cayenne Diesel 3.0L V-6

• 2014–2016 Audi A6 3.0L V-6 TDI

• 2014–2016 Audi A7 3.0L V-6 TDI

• 2014–2016 Audi A8/A8L 3.0L V-6 TDI

• 2014–2016 Audi Q5 3.0L V-6 TDI

For all of th­ese crimes, VW ended up hav­ing to do far more than just pay a fine, fix the prob­lem and move on. As of this writ­ing, the fol­low­ing are just some of the things that have hap­pened to VW as a re­sult of its crim­i­nal ac­tions:

• The com­pany is banned from sell­ing any new diesel ve­hi­cles in the United States. That in­cludes – ex­cept for a hand­ful of 2015 models that squeaked through – any­thing with the Volk­swa­gen, Audi or Porsche name­plate and a diesel en­gine.

• The com­pany had to agree to a $10 bil­lion buy­back pro­gram for all own­ers and lessors of cars found to have the il­le­gal sys­tems on board. Ex­act pay­outs vary de­pend­ing on the ages of the cars and the models, but own­ers of cars pro­duced prior to Septem­ber 17, 2015, could re­ceive be­tween $12,500 and $44,000 per ve­hi­cle, and those in lease pro­grams could re­ceive cash set­tle­ments rang­ing from $2,600 to $4,900 per car.

• Other ve­hi­cles could be re­paired un­der the pro­gram, with up­grades in­stalled to meet the re­quired emis­sions stan­dards.

• VW was even­tu­ally sued in a $4.3 bil­lion crim­i­nal and civil penal­ties case against the com­pany in Jan­uary 2017 and was fi­nally sen­tenced in a fed­eral court in Michi­gan in April 2017.

• In Jan­uary 2017, the U.S. De­part­ment of Jus­tice ar­rested six VW ex­ec­u­tives based on al­le­ga­tions of their in­volve­ment in this scan­dal. (Part of what was be­hind this were al­le­ga­tions by U.S. prose­cu­tors that they had ev­i­dence of VW ex­ec­u­tive man­agers in Ger­many hav­ing been in­formed in­ter­nally about the de­feat de­vices in July 2015. Ac­cord­ing to in­for­ma­tion the prose­cu­tors had gath­ered, those ex­ec­u­tive man­agers chose to keep that in­for­ma­tion from reg­u­la­tors.) vw had to plead guilty to vi­o­la­tions of the Clean Air Act, also in Jan­uary 2017. It was part of a set­tle­ment with the U.S. gov­ern­ment that included a $4.3 bil­lion fine.

• On Jan­uary 6, 2017, a South Korean court sen­tenced a lo­cal VW ex­ec­u­tive to 18 months in prison for fab­ri­cat­ing doc­u­ments on emis­sions tests and noise level mea­sure­ments in or­der to re­ceive cer­ti­fi­ca­tion to al­low those ve­hi­cles to be im­ported.

• On Jan­uary 7, Oliver Sch­midt, the for­mer head of VW’S U.S. en­vi­ron­ment and en­gi­neer­ing of­fice, was ar­rested at Mi­ami In­ter­na­tional Air­port as he at­tempted to head to Ger­many af­ter a Christ­mas va­ca­tion in Florida. He was de­nied bail and is still await­ing trial. Bail was de­nied in part be­cause of the se­ri­ous na­ture of the crime and be­cause Ger­many does not al­low ex­tra­di­tion of Ger­man cit­i­zens to for­eign coun­tries.

• In Jan­uary 2017, Ger­man gov­ern­ment prose­cu­tors an­nounced that they had ev­i­dence that Martin Win­terkorn, the now for­mer VW chief ex­ec­u­tive who was in charge when VW was plan­ning and car­ry­ing out the emis­sions-test fraud, not only knew about what was go­ing on but ac­tively took part in the scan­dal. He re­signed in Septem­ber 2015 and is now fac­ing crim­i­nal charges, pos­si­ble ma­jor fines him­self and jail time.

The VW scan­dal was much big­ger than the cur­rent Fiat Chrysler case. What should not be for­got­ten, how­ever, is that the core is­sues are quite sim­i­lar.

In both cases, the com­pany in­volved know­ingly com­mit­ted fraud in an at­tempt to by­pass emis­sions stan­dards – this was no ac­ci­dent

• there were many peo­ple who had knowl­edge of what was hap­pen­ing, which con­sti­tutes crim­i­nal con­spir­acy,

• mul­ti­ple models and sev­eral years of pro­duc­tion were in­volved

• the means of fraud was suf­fi­ciently in­volved that it had be­come built into the process of de­sign­ing and test­ing the af­fected ve­hi­cles

• by dump­ing large quan­ti­ties of ex­cess NOX emis­sions into the air, the af­fected ve­hi­cles caused great harm to hu­man health and to green­house gas emis­sions world­wide.

De­spite the sim­i­lar­i­ties, it un­for­tu­nately now looks very much like Fiat Chrysler is go­ing to be treated far dif­fer­ently than VW. With a weak­ened EPA headed up by Scott Pruitt, it is un­clear that there will be any fines re­lated to the emis­sions them­selves. The Jus­tice De­part­ment is also sound­ing like it will let things go with a fine and some set­tle­ment is­sues.

It may be that law­suits from in­di­vid­ual states, like Cal­i­for­nia, and class-ac­tion cases from in­di­vid­u­als and deal­ers will be where the big money penal­ties fi­nally emerge.

But the one area where it looks like al­most noth­ing is go­ing to hap­pen is jail time for Amer­i­can ex­ec­u­tives. There will be fines, sure, per­haps even in the in­di­vid­ual crim­i­nal cases that even­tu­ally may get filed. Noth­ing, how­ever, will rise to a se­ri­ous enough level to teach any­one a les­son. In Amer­ica, cor­po­rate crime pays and con­tin­ues to pay be­cause the crim­i­nals are al­most never pros­e­cuted.

When the fi­nal cor­po­rate/le­gal/mar­ket share bal­ance sheet is tab­u­lated for all that has hap­pened to Fiat Chrysler, one can feel con­fi­dent that at worst the share­hold­ers will take a hit. The com­pany will likely find it made a wise in­vest­ment com­mit­ting the crime. It was able to meet emis­sions stan­dards to pass tests with less work, lower costs in its prod­ucts and higher prof­its over­all than if it had com­plied with the ap­pli­ca­ble laws in the first place. In Amer­ica, the ben­e­fits of crime are usu­ally greater than the costs – but only for cor­po­ra­tions.

Photo by Dig­i­tal­ralph, CC

2014 Dodge Ram 1500 with Ecodiesel en­gine.

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