VW pleads guilty in emissions scheme and will pay $4.3 billion, while prosecutors indict 6 execs.

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Volkswagen to Pay $4.3 Billion to U.S., 6 VW Executives Indicted
VW pleads guilty in emissions scheme and will pay $4.3 billion, while prosecutors indict 6 execs.

— Volkswagen has agreed to plead guilty and pay $4.3 billion in civil and criminal penalties for illegal schemes to manufacturer, advertise, import and sell about 590,000 "clean diesel" vehicles in the U.S.

In addition, U.S. prosecutors have indicted six Volkswagen executives for their roles in the emissions fraud.

By pleading guilty, VW will pay a $2.8 billion criminal penalty and another $1.5 billion penalty to satisfy claims connected to the automaker illegally importing and selling the cars and for claims related to customs fraud.

VW is charged with participating in a conspiracy to defraud the U.S. and VW customers and for violations of the Clean Air Act by lying and misleading the Environmental Protection Agency (EPA) and U.S. customers about the emissions systems. Volkswagen admits it spent years using sophisticated and illegal software to conceal nitrogen oxide emissions that are up to 40 times higher than allowed by law.

VW is also charged with obstruction of justice for destroying documents and with a separate crime of importing the illegal cars into the U.S. by means of false statements about the compliance with emissions limits.

Under the terms of the plea agreement, Volkswagen will be on probation for three years and be under an independent corporate monitor who will oversee the company for at least three years.

In addition to the $4.3 billion in penalties, six Volkswagen executives have been indicted by a federal grand jury, but five of those people are believed to be in Germany. Only one executive, Oliver Schmidt, was arrested as he was visiting the U.S. on January 7.

The remaining five include Heinz-Jakob Neusser, Jens Hadler, Richard Dorenkamp, Bernd Gottweis and Jürgen Peter. All are charged with one count of conspiracy to defraud the U.S. and U.S. customers and for violations of the Clean Air Act.

According to the court documents, VW engineers began in 2006 to design a new diesel engine to meet stricter U.S. emissions standards that would take effect by model year 2007.

This new engine would be advertised to buyers as “clean diesel,” but when the alleged co-conspirators realized they could not design a diesel engine that would meet the stricter nitrogen oxide emissions standards, VW decided to cheat by using special software to fool the emissions test machines.

The indictments claim that in order to sell their “clean diesel” and "environmentally-friendly" vehicles in the U.S., the alleged co-conspirators lied to the EPA and everyone else about the existence of the illegal emissions-altering software.

Prosecutors lay out a detailed case showing the actions of Volkswagen going back to 2006 and how employees concealed the software. For example, in July 2012, VW engineers allegedly met with Mr. Neusser and Mr. Gottweis to explain the defeat devices were believed to be the cause of reported hardware failures.

Gottweis and Neusser each allegedly encouraged further concealment of the software and in 2014, VW 'perfected' the cheating software by starting the vehicle in “street mode,” and when the defeat device realized the vehicle was being tested, the system switched to the “dyno mode.”

Court documents say that to increase the ability of the software to recognize a car was being tested on the dynamometer, VW engineers activated a “steering wheel angle recognition feature."

Volkswagen believed stress on the exhaust system would be reduced because the engine would not be operating for as long in “dyno mode,” so the new function was installed in existing vehicles through software updates.

However, VW told the government and customers the software update was intended to improve the vehicles even though engineers knew the update was used to quickly deactivate emission control systems when the vehicle was not undergoing emissions tests.

The $4.3 billion settlement is in addition to the $14.7 billion Volkswagen is spending to satisfy other environmental claims and to compensate 2-liter owners, more than $1 billion to owners of 3-liter diesel cars and another $2.1 billion to be paid to Canadian owners of VW diesel vehicles.

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