Update on VW Emissions Cheating Scandal: Feds Arrest Executive on Conspiracy

The second, but certainly not the last, arrest to be made at German car manufacturer Volkswagen

News broke early Monday out of Detroit that the Federal Bureau of Investigation (FBI) arrested another executive for alleged participation in the massive 2015 emissions cheating scandal at Volkswagen. Oliver Schmidt, former general manager of the engineering and environmental office for VW of America, is the second employee of the German car manufacturer to be arrested over the scheme. Schmidt is scheduled for arraignment in Detroit where the investigation is taking place, according to the Associated Press.

“The timing of the criminal complaint – December 30 – is consistent with the advanced nature of the corporate settlement conversations,” says Erica Salmon Byrne, EVP and Executive Director of Business Ethics Leadership Alliance (BELA) at the Ethisphere Institute. “Given the nature of the conduct, this was absolutely one of those investigations that is not going to end with a ‘no guilty plea and large fine’ corporate settlements. The government will absolutely seek to hold the individuals involved responsible for their bad acts, in addition to some kind of resolution with the company. I expect this will not be the last arrest made.”

Schmidt, whose responsibility with VW was to ensure each vehicle complied with national emissions regulations in the US, is said to have misled regulators on how the company conducted on-road emissions testing for diesel-powered vehicles. Manufacturer installed software was pre-programmed to turn the emissions gauging function off for a favorable reading while on the road.

VW made headlines last year when the scandal initially broke, and has been heavily fined by regulators and scrutinized since. Dubbeddieselgate by the media, VW has been federally mandated to buyback consumers purchase of their car for the value of the vehicle was at time of purchase dating back to September 2015, and also receive additional compensation. For Germany’s largest automaker, the scandal has cost them nearly $18 billion to cover the costs associated along with the buyouts from their consumers. Approximately 480,000 vehicles were impacted by the scandal. Settlement costs also include environmental fines imposed by the Environmental Protection Agency (EPA) for violation of the Clean Air Act.

Complacency is catastrophic

The message here is clear: we cannot be complacent and simply go along to get along. If we comply within the bounds of an unethical culture we will be held accountable, says Katie Smith, EVP and CCO at Convercent.

“The last year we’ve heard regulators warn that compliance officers can be found liable,” says Smith. “We are finally seeing this play out on the world stage. A truly proactive program should be involving the control partners such as internal audit to help test if the compliance and ethics program is truly effective and the appropriate controls are in place. This also means we must provide employees safe avenues to report concerns. It’s hard to believe and highly unlikely that the decisions made at Volkswagen were unknown by others throughout the company.”

Saw-tooth compliance 

It’s often times that compliance and ethics programs follow a saw-tooth pattern of sorts, says Managing Director of Europe Keith Read. This pattern takes the look and feel of commitment, investments and interest, with the foundational program itself sitting at the bottom of this hypothetical saw-tooth, that is, until the time comes where there is a problem that affects the company or industry demanding more resources or investment.

“The [program] then moves up the saw-tooth until the point the problem recedes, whereupon the compliance [and ethics] program is allowed to decay, at least until the next time,” says Read.

Compliance officer liability continues to be a focus for law enforcement

Compliance and ethics professionals struggle with their marketability, that is, defending and proving their impact. As of late, added struggle was thrown into the mix: personal accountability. Across industries, these professionals have been held personally accountable for wrongdoing while overseeing the ethics and compliance function. For example, there have been instances where a CCO has left an organization and a scandal was uncovered afterward. The former CCO was then held accountable, asked to forfeit, and subsequently, fined millions of dollars’ years after association with the organization.

What is occurring at Volkswagen, puts this notion in a clearer focus and makes those defending a company or advising them to do the right thing (or those who don’t do their job well) a bit more nervous when scandals unfold and truths surface. You would think that compliance and ethics professionals would, therefore, act more diligently and move in a more calculated manner, but see in this case, the exact opposite.

Questions arise from this case and many others that at the very least, teach us valuable lessons sans sensationalizing the story

Does the industry think:

A bad action of one should impact all?

Or

A compliance professional that is following the marching orders of the government and of the powers above them, their neck should be on the line?

Or

Industry should shift to think if you are willing to defend a company and keep a company out of harm’s way by following rules and regulations of government and business, personal liability should be considered an occupational hazard?