Volkswagen scandal: what happens next?

Volkswagen auto sales are shutting down around the world as the scandal surrounding falsified emissions data grows.

The German automaker has admitted that about 11 million automobiles with diesel engines are outfitted with “sleuth” software designed to defeat emissions testing. In the United States alone, Volkswagen could face fines of US$37,500 per vehicle, according to the U.S. Environmental Protection Agency. Reports suggest that the Department of Justice has initiated a criminal probe.

Environment Canada has launched an investigation, as have agencies in Italy, South Korea and Switzerland. Civil lawsuits have been filed in the U.S. and more are expected. The scandal has resulted in a loss to Volkswagen of more than $35 billion in market value. The company has set aside 6.5 billion euros to deal with recall service expenses. Volkswagen CEO Martin Winterkorn has stepped down.

Markus Dubber, a professor at the U of T Faculty of Law and founder of the New Criminal Law Review, weighs in on the implications of the scandal.

What are the possible legal outcomes?

That depends on whether and, if so, how various jurisdictions decide to address this issue. In the U.S., Volkswagen may face regulatory and criminal sanctions, not to mention civil liability resulting from lawsuits brought by consumers, including class actions. Sanctions may be brought under state (and in particular California) law or federal law, or both.

Will anyone go to jail?

Remember that this is not framed as a traffic safety issue, but as an environmental issue, pursued by the Environmental Protection Agency, not the Highway Safety Administration. Beyond administrative fines, which under the Clean Air Act can run into the billions, the corporation and its officers may also face criminal penalties. Depending on the nature of the charge, these penalties may include imprisonment.

But will any of this really happen?

It’s too early to tell how this will play out. Regulators are investigating beyond the U.S. now that VW has reported that 11 million cars – far beyond the initial recall of 500,000 in the U.S. – have the engine that contains the device designed to mask emissions during testing. The potential for severe financial sanctions, and even personal carceral sanctions, is considerable and can’t be dismissed out of hand, given the alleged scope, seriousness, and wrongfulness of the conduct. This, after all, is presented as a case of a wilful and systematic manipulation of the production process of a large number of vehicles, rather than as a case of oversight resulting from the failure to exercise proper supervision.

The scandal is shocking. But would you agree that it has no obvious safety ramifications?

While the harm to individuals, notably drivers, in the VW case pales in comparison to that suffered by those in vehicle safety cases, such as the Toyota self-acceleration case or the recently settled GM ignition switch case, it can be argued that the class of potential victims is far larger: the “breathing public,” as one environmental activist put it. It doesn’t help VW, or its executives, that the cover-up may be worse than the initial offence, insofar as VW officials are alleged to have denied that the discrepancies between test results were attributable to their vehicles, rather than testing error. The initial fraud would thus have been compounded by false statements to regulatory officials, giving rise to further criminal liability.

Is this an unusually complex case from the standpoint of legal theory?

This case raises interesting questions about the interplay between administrative and criminal law, between state (or provincial) and federal  law, and between domestic and international, even global, law, as well as about questions of criminal liability in a corporate context. Focusing on the latter issue, U.S. and Canadian criminal law, along with common law jurisdictions in general, recognize corporate criminal liability. German law emphatically does not, on the ground that criminal liability is, must be, and can only be, personal.

From a common law perspective, the interesting question is whether the U.S. Department of Justice will use this opportunity to make good on its recently announced commitment to ferret out and prosecute not only corporate criminal liability, but also personal criminal liability of executives. By contrast, from the German perspective, this case is unusual – and troubling – because it raises the possibility of the criminal prosecution of a corporation, never mind of corporate executives.

What can VW and its executives do at this point?

After apparently having denied any wrongdoing for months, VW has turned to admitting fault and apologizing, even dramatically expanding the scope of the scandal beyond the relatively small U.S. market to the global market. This is smart insofar as it may help minimize the damage to its bottom line. As far as criminal liability, for the corporation or individuals, or both, is on the table, of course, the corporation and individual officials may also want to exercise caution so as not to admit criminal liability along the way.