I don’t suppose we’ll never know how many people died - asthmatics, for example - because Volkswagen designed its “clean diesel” vehicles - all 482,000 of them sold in the U.S. since 2009 - to burn dirty except when they were being tested. The story reads like the most paranoid anti-corporate fantasy, until you get to the line where the firm admits what it did, and then discover that Honda and Ford got caught years ago doing the same thing in a less sophisticated way. There’s even a  term of art for such tricks: they’re called “defeat devices” because they’re designed to defeat emissions testing.
In the VW case, code was written into the engine-control software to detect the pattern of pedal and steering operations characteristic of an emissions test. Then, and only then, the car’s emissions-control machinery would kick in. Once the test was over, the software noticed that, too, and returned to normal - that is to say, illegally and dangerously dirty - operations. That meant emitting about 40x the permitted -and advertised - level of nitrous oxide, which makes smog.
Now just think about the depth of corporate depravity involved. This wasn’t one rogue engineer or engineering group at work. People up and down the chain had to be party to the crime. Â And note that the conspiracy held together for six years, and was finally broken not by an internal leak but by the work of outside scientists at West Virginia University. Wasn’t there a single decent human being around when this was being planned and carried out?
Some quick comments:
1. The news stories discuss fines that might be levied against VW. Â When people conspire to commit a crime that harms the health of untold numbers of people, Â criminal charges are appropriate. And not only against the company, but against every official in it who can be shown to have known about the conspiracy.
2. At minimum, the civil penalties and civil-lawsuit damages should be sufficient to put VW out of business. That might make managers, and boards of directors, in other firms a little bit less casual about lawbreaking.
3. Keep this case in mind when evaluating the claim oft heard from Koch-funded “criminal justice reform” advocates that it’s wrong to “criminalize” regulatory violations. Of course no one should go to jail for paperwork errors. But deceiving the regulators is a fraud on the government, even when it isn’t - as it is in this case - a physical assault on the public.
4. Can we hear some more from the Republican Presidential candidates how business is Good and government is Evil? And is there any hope that a reporter will ask them whether they think the perpetrators of this appalling crime should face prison time for it? (Again, note that VW isn’t denying what was done, and can’t possibly deny that it was done deliberately.)
Footnote  I’ve quoted C.S. Lewis on this before, but his words bear repeating:
The greatest evil is not now done in those sordid “dens of crime” that Dickens loved to paint. It is not done even in concentration camps and labor camps. In those we see its final result. But it is conceived and ordered (moved, seconded, carried, and minuted) in clean, carpeted, warmed and well-lighted offices, by quiet men with white collars and cut fingernails and smooth-shaven cheeks who do not need to raise their voices.
The most horrible thing about this case is that very few if any of the people involved will have lost any sleep over their guilt in making sick people sicker (and killing some of them) and none will lose face among their friends and neighbors. Even if some are found guilty of felonies, life won’t be nearly as bad for them as it is for someone who gets caught committing burglary. And yet no burglar’s contribution to human suffering can hold a candle to what the VW conspirators managed to inflict.
I might add: if a steel supplier sold VW a batch of 36,000 psi material labeled 60,000, and put its thumb on the testing machine, those VW execs would think they were actually being cheated.
Holy cow. That's just incredible - and I agree, there needs to be criminal charges against a whole ton of officials in Volkswagen, followed by massive fines levied against the firm itself.
I'm pessimistic about the possibility of any fines that will do serious damage to VW, though. The auto industry is big and employs a bunch of people, and you just know folks will be leaning on the Obama Administration talking about "the lost jobs", the "damage to a critical industry", etc. The same type of attitude that let the malfeasance of financial companies off the hook in the Great Recession.
That reminds me of your post on environmental lead exposure. So many people in these companies who didn't say anything, who let a great crime slide by rather than rocking the boat.
I think the concern about jobs is legitimate — there is no reason why thousands of line workers who had nothing to do with this should be punished, better to target the prosecution to those who perpetrated the crime.
Keith,
Two points:
1. Putting VW out of business, or barring them from selling cars in the US, does nothing to reduce the demand for cars. In the (possibly very) abstract the jobs lost will be recovered in other car companies.
2. It is not impossible to devise a scheme whereby VW workers who lose their jobs share in any fines and penalties levied against the company. Obviously, arithmetic needs to be done here.
At federal level, the company has some leverage. But in California? VW doesn't make cars there. State AGs are politicians and climb the greasy pole by winning big cases with public opinion on their side. A Californian jury will decide punitive damages after seeing videos of nice people dying of emphysema and heart attacks. The offence is open and shut; these are closed systems and the company can't deny it put the engine management software in. It would save time if the VW top management went to the Japanese store and bought seppuku swords right away.
Keith is right that the line workers shouldn't suffer. But a well-managed bankruptcy of a going concern doesn't do this. New managers take over the plants, design teams and IP. What a bankruptcy does is to punish the shareholders, on whose behalf managers were acting. This is a message worth sending.
BTW, it’s not strictly true that VW line workers bear no responsibility for the crime. Under the German co-management system, workers elect
a minorityhalf of the Supervisory Board (Ubersichtsrat) of a big company like VW, to which the executive board reports. It would be extraordinary if the Supervisory Board had ever been asked to approve the software scam; and the broader task of maintaining a culture of normal business honesty is hard to make operational. But if the Board can’t do this, what is it for? One advantage this scheme does possess is providing a ready-made and secure channel of complaint to whistleblowers. It doesn’t look as if any of the dozens of German Dilberts who knew of the scheme blew any whistles.Sick. Perhaps literally, as I have asthma. My car is a 2003 VW Touran turbo diesel sold in France. Does anybody know if VW installed similar software to beat European emissions tests? If so, are European regulators taking action? Will Angela Merkel stand on the side of a national champion or of the citizens it has defrauded and sickened?
Volkswagen tötet Babys.
The Times is reporting this morning (sorry could not find it on line) that a research audit in Brussels has shown that VW cars (as well as those of other makers) have been caught out using the same kind of defeat devices.
I haven’t read anywhere- what was the point? They had emission controls but didn’t turn them on- what’s gained by keeping them off? Is driving performance better? Would drivers actually notice the difference under standard road conditions?
There's a trade-off between fuel efficiency and emission control. Unless you lie and cheat.
Or you can look at it this way: Cheap. Safe. Honest. Pick two.
It's in the LA Times article:
Officials did not specify VW’s motivation for cheating, but some benefits might be to increase real-world performance or fuel economy, Sullivan said.
SP - yes, I read elsewhere that emission controls reduce performance like max acceleration.
My two cents:
First, liberal hypocrisy is funny. It's not like VW is killing thousands of unborn babies each year. So this starts to maybe put VW on par with Planned Parenthood for the level of pure evil…
Second, Mark's call to hear more from the Republican Presidential candidates about how business is good and government is bad…I think he means how business is "efficient" and government is "inefficient", which our candidates would be glad to continue to make more of the case for. No arguing that VW was quite efficient here.
Third, my dad will be ecstatic with this news. He has long hated VW, and once when I was a child and we owned a lemon of a VW van, he told us of his wish to drive the CEO of VW off a cliff in that van. In high school, he also wouldn't let any of our friends park a VW in the driveway.
Finally, as an asthmatic myself, I'm running out of breath just reading this.
Can we impose the same level of sanctions on the EPA, for poisoning a river? I'd like to think consequences aren't limited to the private sector.
Most corporate documents provide that the corporations pay the legal costs incurred in defending their officers and directors and other key employees. While these provisions also call for repayment upon conviction, the repayment obligations are rarely fully honored. These provisions should be made illegal. Now, the federal government may not be able to do this directly since the corporate governance provisions are derived from state law (Delaware we're looking at you) provisions. So, let me suggest a work-around.
Federal tax law should provide that entities that pay the legal costs incurred in defending corporate employees cannot deduct an amount equal to 3X the cost of defense. That should provide an incentive for executives to hew to the straight and narrow, since if they don't (i) they will face the possibility of substantial jail time and fines, and (ii) they will no longer have the ability to a gold-plated defense provided on the financial ticket of their employer's shareholders.
Criminal prosecutions of individuals would be nice, but it's harder than most people realize. Showing that someone knew about the deception usually isn't sufficient; prosecutors need to show that a specific individual acted affirmatively and knowingly to advance the illegal scheme. It requires documentation and/or compelling testimony of those actions. In general, the chances of being able to convict anyone close to the executive suites is very difficult. While prosecutions of lower level employees can have salutary effects, anyone hoping to see the CEO in handcuffs is likely to be disappointed for reasons that have nothing to do with prosecutorial discretion going soft on executives.
JMN,
What counts as acting "affirmatively and knowingly to advance the illegal scheme?" Someone had the idea. Someone approved it. Someone ordered it implemented. Someone wrote the code. Someone could have called a halt. So which of these someones gets to pass the buck?
Sure, but I'm willing to bet that you won't find any documentary evidence linking senior executives to any of that, and that testimony from underlings will mostly end up sufficiently vague that you can't generate a conviction from it.
The case looks tailor-made. This wasn't negligence or unconscionable risk-taking to save money, as with the faulty GM ignitions. It was planned, budgeted, executed, and put into effect. Somebody in senior management signed off on it at each stage. It can't have gone to the legal department, which would have had a fit. I agree that it probably wasn't the CEO or either the executive or supervisory board, which were doubtless negligent. The distinction won't save their jobs or the shareholders.
There is a difference between what was done and what can be proven in a court of law. Convicting corporate executives individually of criminal offenses is very, very difficult. The primary exception are cases where money goes directly from illegal activity into the executive's pocket, such as in the World Com case. You have to come up with documentation of their involvement and that documentation has to be very clear cut. The typical defense is to throw out all kinds of alternative explanations for what was in memos or emails, and at trial it becomes easy for executives and their lawyers to cloud the issue to the point of establishing reasonable doubt.
The history of successfully prosecuting senior management is poor. Read up on the Henry Samueli case for an example.
Just because it'd be difficult doesn't mean it isn't worth trying. Especially with a prosecutor who's really trying.
And it's fine if the CEO is not led away in handcuffs so long as the CEO wasn't involved. The highest official knowingly and intentionally involved should get prosecuted, whoever that is.
The scandal needs a name, I suppose "Beetlegate" is inevitable.
Oh, come on. Goosing the cars for better performance clearly indicates that the proper name is Beetlejuice.
Funny name, eh? VW aren't laughing.
This may be a first for cars, but the EPA fined the bigger diesel manufacturers (Cummins et al) around $100 million for similar activity during the Clinton administration. (Part of the issue here is the VW is European-the European standard is a "must pass the test" standard, while the US standard is a "while driving" standard; this functionality would be in my understanding completely legal in Europe.)
Of course, if you think global warming is a major problem, the manufacturers were doing the right thing-getting fuel mileage up even if it caused difficulty elsewhere.
Clinton administration settlement
A friend in the financial industry (whose role precludes stepping out of anonymity) writes:
"I like the thought about VW really acting like the evil corporation that corporations are often unfairly accused of. While I wouldn't bankrupt VW, my quick back-of-the-envelope calculation suggests that they could have total fines of ~$30BN and still have a BB or BB+ rating, i.e. at the high end of the junk rated spectrum. Such a fine would act as a strong incentive to keep other car companies from behaving badly, plus it could fund the healthcare costs of many Americans with respiratory ailments."
I'd rather call it "VW Diesel Defeat". Or "VW Diesel Defeat Device" VWDDD or VWD3. No 'gate' - this isn't some cowboys with too much freedom of action, its top to bottom a criminal conspiracy, abuse of public trust and ipsofacto negligence at any level above those culpable. With real human deaths and disease as a consequence. Whomever decided the production software should have this behavior should face criminal charges. Whoever they worked for either knew or should have known. On up to the biggest schnitzel and his successors. Millions of cars for over a decade. Its not an accident. It makes me sick at heart. I was formerly a fan and enthusiastic supporter. I think they've lost me for good. And very disappointing that they got away with it so long…
At every step of the way, there could have been a single person who could have blown this wide open at an early stage.
Germany needs to develop a whistleblower reward culture.
Likewise, both CARB and EPA need to enact a reward regime that promotes and protects whistleblowers into coming forward with info. (Because such a program would reduce the scale of the related scandals, these agencies will have to criminally prosecute and maximally fine the corporate and individual malfeasors to have adequate deterrent effect and monies to reward the brave whistleblowers who come forward.)
To quote the famous philosopher, "You ain't seen nuthin yet." Human knowledge has been exploding exponentially. Technology has been exploding even faster. Even the very *rate* of "improvement" is beginning to increase exponentially.