The Volkswagen emissions scandal
The intentional use of defeat devices in Volkswagen's models clearly violated environmental legislation within various jurisdictions, most recently pertaining to the U.S. Clean Air Act (CAA) and the European Union's emissions regulations. The CAA, through the EPA, establishes uniform standards for air quality and regulates how much harmful pollutants, such as nitrogen oxides, from sources can pollute the atmosphere. It also forbids the manufacture of any devices that bypass the set emission testing protocols in vehicles. This is exactly what Volkswagen did when it hacked the device through software programmed to detect emissions testing conditions and alter the engine performance to meet set emissions standards. The EPA has slapped civil fines amounting to $2.8 billion on Volkswagen for this violation. The Clean Air Act also covers criminal charges in cases of intentional fraud, and therefore Volkswagen found itself liable in criminal and civil cases in the United States (EPA, 2016). In Europe, the company had failed to meet the European Union's Euro 5 and Euro 6 emissions standards which set out the required levels of NOx and other emissions from the diesel engine. Less centralized, compared to the United States, were the enforcement and application of such rules within the European Union member states. Investigations were, however, undertaken in several countries in Europe, where fines and class lawsuits were issued. Notably, Germany issued Volkswagen with a €1 billion fine in 2018 – one of the highest fines related to environmental violation cases in the EU (Fitzgerald, 2020). This has meant longer-term implications for environmental law enforcement, including the introduction of much tighter emissions testing regimes worldwide, the adoption of RDE tests in Europe, and further measures on strengthening the EPA testing procedures in the U.S. Furthermore, using defeat devices constituted corporate fraud as the company intentionally misled regulators and consumers about the environmental performance of its vehicles. The US regulators accused five officials of VW on charges of conspiring to defraud the government and consumers (Rattalma, 2017). In 2017, Oliver Schmidt was sentenced to seven years in prison for his role in covering up the scandal. While other high-ranking VW executives were indicted, they evaded extradition by remaining in Germany . The scandal highlighted severe weaknesses in Volkswagen’s corporate governance. Investigations revealed that the company’s leadership, primarily Winterkorn, prioritized financial gains over legal compliance and ethical responsibility, allowing the defeat device scheme to continue unchecked for nearly a decade. Also , VW’s deceitful practices constituted a breach of consumer protection regulations, given that the company inaccurately and falsely promoted its diesel cars as being environmentally friendly. VW advertised its diesel cars as ‘ clean diesel, ’ implying a greener car, which is a keen selling point for consumers. Volkswagen's fraud further extended to investors and was thus against securities laws. Public statements by Volkswagen had deceived its shareholders about the actual risks associated with the diesel cars. When the scandal broke in 2015, the stock plummeted dramatically, heavily affecting VW’s investors. Multiple investors, having lost significant money, filed lawsuits against Volkswagen due to the revelation of the use of defeat devices and corresponding legal and financial implications, leading to billions in settlement and legal fees out of class-action lawsuits (Rattalma, 2017).
The US response to Dieselgate was severe and unforgiving, with multiple federal agencies pursuing both civil and criminal charges against the company. The EPA Civil Settlement of 2016 was a huge $14.7 billion, which included compensation for consumers, environmental funding, and vehicle buy-
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