AP Photo/Michael Sohn
It's a bad time to be a Volkswagen executive. You've just been caught illegally installing software in nearly half a million TDI "clean" diesel cars in the U.S., and 11 million worldwide, designed to fraudulently pass smog emissions tests. Reports reveal that you lied about this, in the face of demonstrable evidence, for more than a year. Fines under the Clean Air Act could hit $18 billion. On Monday your stock lost $20 billion in value in the first two hours of trading, and another $20 billion or so since then. The stock only stopped falling when your CEO, Martin Winterkorn, decided to resign.
But despite the damaging fallout, there's a path for VW to, improbably, survive their deceptions. After the CEO resignation and a $7.3 billion set-aside to pay any penalties from the scandal, investment analysts rated stock in the company a "buy." Shares rebounded on Wednesday. A predictable backlash about carmakers habitually manipulating emissions tests and lying to regulators is in full swing. As long as penalties are limited to fines, which are borne by shareholders and can easily be seen as the cost of doing business, Volkswagen and its executives could make it out of this battered but not bruised.
This is why the Justice Department must live up to their promises and actually hold individuals responsible for defrauding the public and polluting the globe. Through a quirk of timing, the public learned of VW's fraud just days after DoJ vowed to prioritize individual prosecutions of corporate criminals. There is no better test case for whether they mean what they say.
In an internal memo released to the public, Deputy Attorney General Sally Yates instructed federal prosecutors that they cannot give "cooperation credit" (in the form of reduced penalties) to any company assisting with a fraud investigation unless they "provide to the Department all relevant facts relating to the individuals responsible for the misconduct." This includes senior-level management; Yates told The New York Times that companies cannot "just offer up the vice president in charge of going to jail."
Not only do we know that the Justice Department's Environment and Natural Resources Division has opened a criminal investigation into VW, but we know that VW is cooperating with the probe. So in addition to all the Environmental Protection Agency's evidence that Volkswagen designed vehicles to only engage full emissions controls during testing, shutting it off for higher performance on the road and spewing 40 times the legal limit of pollution, prosecutors should be able to obtain evidence on precisely who inside the company authorized this conduct, from the lowest-level engineer to the top executive.
We actually have a very good model, also decided this week, on how DoJ could proceed. On Monday, Stewart Parnell, former CEO of the Peanut Corporation of America, was sentenced to 28 years in prison for knowingly shipping tainted peanuts that caused a salmonella outbreak in 2008-2009 that killed nine people. Parnell was never charged with murder, but his sentencing, which featured testimony from families of the victims of peanut poisoning, clearly reflected his culpability in their untimely deaths.
In theory, at least, Volkswagen executives responsible for their fraud have many more deaths to answer for. According to an analysis from The Guardian newspaper, the rigged emissions tests that put 11 million VW cars on the road emitted one million additional tons of air pollution every year, based on average mileage.
We know that such pollution kills people. A British Medical Journal study in May connected short-term exposure to nitrogen oxide (NOx)-the type of pollution emitted by VW vehicles-to a 0.88-1.09 percent increase in deaths by heart and lung disease. The EPA estimates that 48 million Americans live within 300 feet of a major highway, road or airport, subjecting themselves to short-term NOx emissions. And they suggest in this report that every additional ton of NOx in the atmosphere leads to between 0.00085 and 0.0019 premature deaths.
As Brad Plumer extrapolated at Vox, another million tons of NOx every year, based on those figures, caused between eight and 78 premature deaths a year in the United States, and 200 to 1,800 deaths globally.
The numbers are approximate and subject to refining, of course. But this would put Stewart Parnell's 28-year sentence for his role in nine food poisoning deaths at the low end of the scale, compared to the suffering meted out by Volkswagen. In any other context, we would call someone responsible for the killing of eight to 78 people a year a serial killer.
Where the Peanut Corporation of America and Volkswagen differ is in their political power. PCA, a relatively small operation with 90 employees and three processing plants, went out of business in 2009, after their role in the salmonella outbreak was exposed. They had no ability to use their clout to keep Stewart Parnell out of prison.
Volkswagen, by contrast, has spent $1 million on lobbying in the United States for the past seven years. The high-powered firm Akin Gump represents them in Washington. Being a foreign company, they do not give corporate campaign contributions, but they definitely have boosters on Capitol Hill, particularly those from states with Volkswagen plants.
The threshold question is whether Volkswagen will use this muscle to keep their executives out of jail-and more important, whether the Justice Department will let them. There was plenty of reason to be skeptical at DoJ's vows to bring individuals committing corporate fraud to justice-for example, the complete lack of prosecutions for those who perpetrated the financial crisis and nearly cratered the economy.
But the VW provides an opportunity for redemption. The reason auto executives feel comfortable using "defeat devices" to cheat on emissions tests is that they are rarely personally affected in the aftermath. Only criminal penalties will alter that reality. It may be difficult to extradite German-based executives on conspiracy and fraud charges, but this is a case where DOJ, desperate to regain the public trust, should try to get caught trying.
The Justice Department wants to prove that they don't have a two-tiered system of justice, but it's going to take more than memos. The perfect example for how the change in posture manifests itself in tough enforcement has fallen into their lap. If they don't take advantage, we'll know it was just talk.
