Volkswagen engineer pleads guilty in emissions scandal

A veteran Volkswagen engineer has become the first person to be criminally charged over the diesel emissions scandal, in a move that opens the door to possible charges against other employees.

James Liang, a VW employee for 25 years, pleaded guilty to conspiring to defraud US customers and regulators and agreed to co-operate with federal prosecutors investigating the carmaker's conduct.

The engineer at VW’s facility in Wolfsburg, Germany, admitted to helping develop the cheating software that masks vehicles’ emission levels while in test conditions.

Last September VW admitted that 11 million cars – including 110,000 in Ireland – contained the software, sparking investigations and lawsuits across the world that have cost the carmaker billions of dollars and tarnished its reputation.

On Friday Mr Liang (62) pleaded guilty to a charge of conspiracy to commit wire fraud and violate the Clean Air Act. His involvement raises the possibility that criminal charges may be brought against other employees at the German carmaker.

Criminal investigation

VW, which is also under criminal investigation but has not yet faced charges, said: “Volkswagen is continuing to co-operate with the US department of justice. We cannot comment on this indictment.”

Since the scandal emerged a year ago, questions over whether senior executives knew of the deception have gone unanswered.

A plea agreement with prosecutors stated that, even as VW billed its cars as “clean diesel”, Mr Liang and other company employees “knew that these representations to US customers were false and that VW’s diesel vehicles were not clean”.

Mr Liang personally participated in a VW conspiracy to outwit US emissions rules governing 500,000 VW diesel 2.0 litre passenger cars, according to his plea agreement, which describes meetings attended by company officials and US environmental officials in 2007.

During those sessions, “Liang participated as his co-conspirators misrepresented that VW diesel vehicles complied with US” emissions rules, the document stated.

Mr Liang was a key part of VW’s efforts to quell regulators’ concerns about the vehicles following a 2014 study that identified discrepancies between the cars’ emissions in lab tests compared with their actual road performance.

He was part of the original engineering team that built the EA 189 engine in Germany, but he was also in the US when California regulators began asking detailed questions about emissions. “He was in the wrong place twice,” a person familiar with Mr Liang’s case said.

Mr Liang moved to the US in 2008 to work in VW’s Oxnard, California facility.

According to a US court filing from June, but only released to the public on Friday, Mr Liang and unnamed co-conspirators actively concealed information about the existence of defeat devices for cars with model years from 2008 to 2016.

Raised questions

In March 2014, when a West Virginia University study raised questions about the real world emissions of some VW cars, Mr Liang “pursued a strategy to disclose as little as possible” about the illegal software.

He “intentionally made... false and fraudulent statements” to the EPA and CARB to make the discrepancies appear as if they were innocent mechanical and technological problems, the legal filing said.

When VW recalled half a million cars in early 2015 to “fix” the emissions problem, Mr Liang allegedly knew the recall would not work.

VW has already set aside €18 billion to cover the costs of the scandal.

Stuart Pearson, an analyst at Exane BNP Paribas, estimated VW could be fined $2.25 billion if it faced criminal charges over the issue.

“The maximum fine the DoJ can impose is two times the economic gain or loss from VW’s actions,” he said.

While Exane estimated the cost to VW of not installing the correct emissions reduction technology at the time was about $630 million, Mr Pearson added there could be a “wide interpretation” of the costs the company avoided through its cheating.

– (Copyright The Financial Times Limited 2016)