Dirty Money: Governments as accomplices in fraud

There’s a fascinating docu-series called “Dirty Money” which chronicles major acts of fraud and financial malfeasance. The first episode tells the story of the Volkswagen emissions scandal. About five years ago, news broke of VW cheating emissions tests. The German automaker had marketed its diesel engines as “clean diesel” and sold over half a million of these cars in the United States alone. In and of itself this story is not that interesting. Corporations commit crimes to make money? What’s new? The story is a bit more complicated.

Not only did Volkswagen cheat its customers it also cheated the government s that allowed for the importation of these cars into their countries on erroneous test results. “Clean” diesel just wasn’t clean. VW used “defeat devices” that tricked the testing machines into believing the dangerous diesel emissions were far less than they actual were. While other car manufacturers incurred expenses to make their engines less dirty, VW had found the cheat codes.

The most troubling part of the VW story is that the German government almost certainly knew about VW’s cheating according to the series. Apparently the German state of Lower Saxony is the second-biggest shareholder in terms of voting rights and holds veto power over major shareholder decisions. In essence, VW is government run and therefore the German government has a vested interest in covering up VW’s illegal activities. VW, however, isn’t the only company accused of wrongdoing. The series implies that cheat devices were also used by Mercedes and BMW and again the German government looked the other way.

“Surely the Germans can’t be the only ones,” you’re thinking. Indeed the European Union allows for testing in other countries to be done for cross-border exports. In other words, EU manufactured cars were tested in countries that would give them a clean bill of health despite where they were actually made. Fiat was also in on this scheme as was U.S. automaker GM, the series alleges. Doesn’t allowing for automakers to use defeat devices actually defeat the purpose of the tests?

The series brings up a good point. Corporations use their governments to run interference for them. With campaign donations now being considered “just another form of free speech,” corporations have every incentive to get politicians elected then have those same politicians do their bidding. International bidding.

Ultimately the scandal cost VW $50 billion in fines and buybacks, with nearly $25 billion coming from the U.S. alone. What about other countries? Did countries without the clout of the U.S. demand VW pay fines and if so did the German government enforce these penalties? I have been unable to find an instance of VW paying any fine to an emerging market country in connection with the emission scandal.

In short, if you are going to run a corporation and deploy unfair business practices to best your competitors, it’s best to have your national government supporting you. If you don’t yet have this support, make sure to be generous at election time. This vicious cycle is one in which only campaign finance reform will allow for actual reform. While protecting the jobs of your countrymen may be an honorable goal, doing so at all costs is not.