One of the highest-profile corporate scandals of 2015 has
continued to plague German automaker Volkswagen in 2016, as the
U.S. Department of Justice has now sued the company in federal
court. The January 4, 2015 civil suit follows the revelations in
September 2015 that Volkswagen had installed software created to
subvert emissions tests in 11-million of its diesel vehicles
worldwide. Since then, Volkswagen's stock has been buffeted by
sell-offs and downgrades, and is trading nearly 25% lower than
pre-scandal prices. The DOJ civil suit is the latest blow to the
company, which now faces fines in the order of billions of dollars,
regulatory investigations and class actions in several
jurisdictions, including Canada.
The U.S. Government's complaint against
Volkswagen and various related entities, including car makers Audi
and Porsche, was brought under the Clean Air Act, the stated
purpose of which is to protect human health and the environment by
reducing emissions. The Clean Air Act and its regulations prohibit
the use of so-called "defeat devices", which reduce the
effectiveness of a vehicle's emission control system. The
complaint alleges that Volkswagen used such defeat devices in
hundreds of thousands of its diesel automobiles sold in the U.S. In
addition, the complaint alleges that Volkswagen "knowingly
concealed" facts that would have revealed its use of the
devices over the course of regulatory investigations that took
place in 2014 and earlier.
The DOJ is seeking, among other things, civil penalties of up to
$37,500 per vehicle under the Clean Air Act, which brings the
theoretical aggregate amount of the claim to more than $19-billion
(though any total penalty that Volkswagen might one day be ordered
to pay would very likely be much less). Notably, federal
prosecutors did not go so far as to launch criminal charges against
the company or any of the individuals alleged to have been
involved, notwithstanding the U.S. federal government's recent pledge to increase crack downs on
executives responsible for corporate wrongdoing.
Even without criminal sanctions in the U.S., considerable damage
has been done to Volkswagen's brand and reputation, and to its
bottom line. The scope and profile of the scandal has made it one
of the largest ever in the automotive sector and a cautionary tale
for companies of all sizes operating in all markets.
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