Ex-VW CEO Winterkorn Charged by U.S. in Diesel-Cheating Case

(Bloomberg) -- Volkswagen AG's former Chief Executive Officer Martin Winterkorn was charged in the U.S. in a deepening probe into the German automaker's cheating on diesel emissions testing.

Winterkorn, who stepped down from his role as CEO days after the scandal became public, is accused of conspiring to defraud the U.S. and violate the Clean Air Act. The March 14 indictment was unsealed by a Michigan federal court on Thursday.

“The indictment unsealed today alleges that Volkswagen's scheme to cheat its legal requirements went all the way to the top of the company,” Attorney General Jeff Sessions said in a statement. “These are serious allegations, and we will prosecute this case to the fullest extent of the law.”

Winterkorn is the highest-ranking person to be charged in the three-year investigation, opening a new chapter in the cheating scandal that burst into the open in 2015 when VW admitted to rigging the emissions setups of some 11 million vehicles worldwide. The company, which has bounced back with record deliveries and profits, is nonetheless struggling to step out of the looming shadow of the scandal. Investigations and probes, including several raids at company sites by German authorities, have continued amid disgruntled investors and European car owners seeking damages.

Winterkorn is unlikely to ever face trial in the U.S. Germany's Justice Ministry said on Friday that the former CEO would not be sent to the U.S. because the country doesn't extradite its citizens to countries outside the European Union. That means Winterkorn can't be arrested unless he leaves Germany. Winterkorn's lawyer, Felix Doerr, told business newspaper Handelsblatt that he was “surprised” by the charges.

Volkswagen shares declined as much as 3 percent and traded 2 percent lower as of 12:44 p.m. on Friday in Frankfurt, paring gains so far this year to 3.6 percent.

“Volkswagen continues to cooperate with investigations by the Department of Justice into the conduct of individuals,” the company said in a statement. “It would not be appropriate to comment on individual cases.”

Defeat Devices

VW, which earmarked 25 billion euros ($30 billion) for fines and damages, admitted in September 2015 outfitting diesel cars with a defeat device, an embedded software that allowed the vehicles to recognize when they were being tested in laboratory conditions, to reduce emissions to meet acceptable levels.

According to the indictment, Winterkorn was briefed on both the emissions issue and how U.S. regulators were threatening to delay certifying cars for sale, at a July 2015 meeting in Wolfsburg, Germany, where the company is based. Current CEO Herbert Diess, who had joined the company weeks earlier from BMW AG, was also present at the meeting, according to a document released by VW in 2016.

The Department of Justice on Thursday detailed how the Winterkorn-chaired gathering discussed, with the help of a PowerPoint presentation, how VW was deceiving U.S. regulators, including what information had and hadn't been disclosed so far, as well as possible consequences for the carmaker if it were found out.

The carmaker pleaded guilty in January 2017 to using false statements to import cars into the U.S. and to obstructing investigations, and paid $4.3 billion in penalties. Two other employees have pleaded guilty over their role in the affair, and five other executives have been indicted by the U.S. and remain in Germany, avoiding arrest. They include executives who led engine development as well as the failed efforts to design a diesel engine that would meet the tougher emissions standards the U.S. adopted for 2007, as well as another liaison to U.S. regulators.

New CEO

Diess pledged earlier Thursday that the German manufacturer would step up compliance systems to prevent the sort of misconduct that set off the deepest crisis in the company's history. Diess spoke for the first time in his new role as CEO at the company's annual shareholder meeting in Berlin after VW abruptly replaced Winterkorn's successor, Matthias Mueller, last month.

VW Chairman Hans Dieter Poetsch said in Berlin that internal investigations into the roots of the scandal were ongoing and that the manufacturer “constantly explores” possible damage claims from employees that were involved in the cheating, including former board members.

The Winterkorn indictment focuses on the July 27, 2015, meeting in Wolfsburg, where Winterkorn and several other senior leaders were briefed about the diesel irregularities and how U.S. regulators were threatening to hold up certifying 2016 models. Winterkorn at that meeting “approved the continued concealment of the cheating software from U.S. regulators,” according to the indictment.

A wire fraud charge relates to August 2015 emails that Winterkorn received regarding VW's attempts to deceive U.S. regulators through Oliver Schmidt, VW's compliance liaison, according to prosecutors. Schmidt pleaded guilty in 2017 and was sentenced to seven years in prison.

--With assistance from Ryan Beene Christoph Rauwald Karin Matussek Elisabeth Behrmann Arne Delfs and Tony Czuczka

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editors responsible for this story: Jeffrey D Grocott at jgrocott2@bloomberg.net, David S. Joachim, Chad Thomas

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