Wheels Fall Off Dieselgate As FBI Charges Senior Executive; More Arrests Seen

The wide net that authorities had cast after the Dieselgate scandal broke nearly a-year-and-a-half ago has begun to close with the arrest of major Volkswagen Group executive. The Federal Bureau of Investigation (FBI) charged him with wire fraud and conspiracy. Further executive arrests are likely.

The official who headed the automaker’s regulatory compliance office in the U.S. was detained in Florida Saturday, a New York Times report said, as he attempted to return home from a vacation. The executive, Oliver Schmidt, headed the automaker’s regulatory compliance office in the U.S. from 2014 to March 2015. Shackled and wearing a prison jumpsuit during his appearance in U.S. District Court in Miami Monday, he did not enter a plea, and he was ordered held until a hearing on Thursday by U.S. District Court Judge William Turnoff. Schmidt was charged with wire fraud and conspiracy in not disclosing the cheating device used by Volkswagen from 2006 to 2015 to rig turbodiesel emissions. Schmidt’s attorney, David Massey, said his client offered to cooperate last summer and met with FBI agents in London.

VW Management Knew

According to court paperwork, Volkswagen’s management board knew of the “existence, purpose and characteristics” of the so-called emissions defeat device in July 2015. The board chose, at that time, to not tell the U.S. A complaint was filed by the FBI against VW at the end of 2015. The complaint charges VW mislead regulators about emissions test cheating. A source would not say when other executives would be charged and was silent on whether they were still employees of the automaker.

“Volkswagen continues to cooperate with the Department of Justice as we work to resolve remaining matters in the United States,” VW said in a statement Monday. “It would not be appropriate to comment on any ongoing investigations or to discuss personnel matters.”

In an affidavit filed by the FBI, the evidence against Schmidt was developed from VW emails and three witnesses, including James Liang, the only VW engineer convicted in the emissions rigging scandal. According to the affidavit, Schmidt generated an email to another exec asking if the automaker should own the problem. “It should first be decided whether we are honest,” he wrote in the email. “if we are not honest, everything stays as it is.”

This is when the wheels started to come off the truth. It seems that Schmidt and others held meetings in Germany, Virginia, Michigan and California. In August 2015, they came up with the deception. They would conceal the defeat switch from regulators.

One executive, apparently invited to one of the meetings with California regulators – presumably from the California Air Resources Board (CARB) – decided not to attend the session so he “would not have to consciously lie,” Schmidt said to a different manager in an email.

Deception Would Continue

In the meeting, the participants made the decision to continued the deception. At that time, Schmidt and others prepared a list of possible consequences arising from the meeting with the California officials. One of the “negative for VW” consequence was “there could be an ‘indictment,’” the complaint reads.

The complaint continues: "Nevertheless, in the summer of 2015, Schmidt agreed to travel to the United States to participate in direct conversations with U.S. regulators in which he intended to, and did, deceive and mislead U.S. regulators by offering reasons for the discrepancy other than the fact that VW was intentionally cheating U.S. emissions tests, in order to allow VW to continue to sell diesel vehicles in the United States."

Asked about the charges while attending the Detroit Auto Show (North America International Auto Show), Herbert Diess, VW brand chief, told Automotive News:

“Naturally I can say little about that. We simply have to accept that the investigations continue and we hope that we can soon reach a point where we put this behind us. But these are things that the management board itself has no knowledge of,” he said referring to the status of the investigations.

“Naturally this is not good news for us at the show.” He declined further comment on other arrests.

Sources: Automotive News, Bloomberg, New York Times