
Audi CEO Stadler Taken Into Custody in Diesel-Cheating Probe - crunchlibrarian
https://www.bloomberg.com/news/articles/2018-06-18/audi-ceo-stadler-taken-into-custody-in-diesel-probe
======
dalbasal
The European auto-manufacterer test cheating is really, really pernicuous. It
is mistake to view this as simple test cheating. These tests are a greater
part of the "green/carbon reduction" policies that is europe's primary
industrial policy of the last decade.

Domestic auto manufacturers have been primary authors of these policies. The
bootlegger and baptist dynamic has been very strong here. The "baptist"
objective has been carbon/pollution reduction. The "bootleggers" wanted to
sell more European cars by (A) giving them an advantage over imports and (B)
shortening the lifespan of older cars. They have had an extremely favourable
regulatory environment, EU & locally. Pollution-centric tax bands favouring
local manufacturers (based on these tests) are just a piece of that. To cheat
the tests on top of all this is beyond the pale.

All that said, I think we have no way of holding corporations accountable.
Prosecuting individuals is important (and effective), but it also semi-
absolves the company. It makes it seem like individual bad actors acted
against the law, and against the company. There aren't really ways of holding
the company accountable, and limited liability becomes no liability in this
sense.

I don't even know what should be done. "Justice" (IMO) would be fairly harsh.
Volkswagon Group have annual Revenue & Gross Profit of 230bn & 40bn
respectively. Trillions and hundreds of millions over the life of this scam.
Some nontrivial portion of these sales were unearned in the sense that they
would not have happened without fraud. €1bn-€2bn isn't even meaningful.

I think that shareholders should get a haircut, with a meanigful portion of
the company's current value being turned over as a fine. Of course, this would
only encourage a restructuring from equity to debt. IDK....

An individual business owner acting under full liability would have (in
addition to jail time) almost certainly lost her entire business over
something like this. To Volkswagen Group, it's a bump in the road. This is not
fair.

~~~
JumpCrisscross
> _Prosecuting individuals is important (and effective), but it also semi-
> absolves the company. It makes it seem like individual bad actors acted
> against the law, and against the company._

I'm struggling to see how prosecutors can win when the public has this
attitude. Bring criminal charges against an executive? "You're semi-absolving
the company." Bring record fines against the company? "Nobody jails the
executives." Do both? People forget whichever happened first and recycle the
above.

> _I think that shareholders should get a haircut_

This is what it means to fine a company. Takata Corporation had to file for
bankruptcy as a result of its defective airbag inflators [1]. Shareholders
lost and creditors lost (as did employees and those down the supply chain).

[1]
[https://en.wikipedia.org/wiki/Takata_Corporation](https://en.wikipedia.org/wiki/Takata_Corporation)

~~~
dalbasal
I don't think it's a bad thing. I think it's an important thing, and I think
it will be effective for preventing bad behaviour. If it seems otherwise, I'm
sorry for being unclear.

But.. I am fuming at what a case like this exposes. We have no real way of
holding corporations accountable as corporations. If an individual "sole
trader" (or even just a small company) did this, they would almost certainly
pay with the loss of their entire business. In this case, shareholders are
barely affected. I'm angry (hence the ranting) about this, not at the
prosecutor. I'm also don't have a solution.

~~~
JumpCrisscross
> _they would almost certainly pay with the loss of their entire business_

As the Takata example shows (and Enron and Arthur Andersen), a big enough fine
will wipe out a business.

~~~
ckastner
At the risk of sounding too pedantic: wasn't it the reputational damage that
did Enron and Arther Andersen in, eventually?

I'm hairsplitting this because in certain industries, reputational risk is a
much stronger deterrent that legal consequences (severe as they may be).

~~~
vlozko
Enron's and Arther Anderson's accounting fraud did them in. Reputation, while
certainly diminished, did not play a role in their bankruptcy.

Absolutely worth a watch if you have a chance:
[https://www.imdb.com/title/tt1016268/](https://www.imdb.com/title/tt1016268/)

~~~
ckastner
Fraud itself, by definition, is a gain, so that cannot be what did them in.

It's the consequences of getting caught that do you in. The consequences can
be fines, the consequences may be legal liabilities, etc. But in some
industries, the consequence of losing your reputation effectively means losing
your business -- eventually resulting in bankruptcy.

Quoting the Wikipedia page on Arthur Andersen [1]:

> _Since the ruling vacated Andersen 's felony conviction, it theoretically
> left Andersen free to resume operations. The damage to the Andersen name was
> so severe, however, that it has not returned as a viable business even on a
> limited scale._

Perhaps a better example would be Mossack Fonseca [2], the main firm behind
the Panama Papers, who shut themselves down recently because what client wants
to be associated with _that_ hot mess?

Your clients running away will kill you a lot faster than any authority (short
of industries where an authority can revoke your license to do business, eg:
banking).

[1]
[https://en.wikipedia.org/wiki/Arthur_Andersen#Demise](https://en.wikipedia.org/wiki/Arthur_Andersen#Demise)

[2]
[https://en.wikipedia.org/wiki/Mossack_Fonseca](https://en.wikipedia.org/wiki/Mossack_Fonseca)

------
FranzFerdiNaN
Good. More ceos should be arrested and jailed if companies ignore the law
under their watch. Their “rogue engineer” excuse was laughable.

~~~
usrusr
Yet shareholders who pushed executives over the edge with inflated performance
expectations get to keep all their gains, if they sold before scandal hit.
There are no sanctions in the arsenal of rule of law that could ever touch
them.

~~~
JumpCrisscross
> _There are no sanctions in the arsenal of rule of law that could ever touch
> them_

Prosecutors can and do pierce the corporate veil [1]. Otherwise, losing money
on their investment seems like fitting punishment for disinterested
shareholders.

[1]
[https://en.wikipedia.org/wiki/Piercing_the_corporate_veil](https://en.wikipedia.org/wiki/Piercing_the_corporate_veil)

~~~
rkarroll
I agree. Eventually, the market should figure out that excessive goals lead to
bad actors reducing long term value. So losing money on investments is as good
of a feedback mechanism as any I can think of.

------
JumpCrisscross
> _Until now, backing of the Porsche and Piech families, who control the
> world’s biggest carmaker, ensured him continuing in the role he’s held since
> 2007._

It’s healthy to step back and consider how rare, in our world today and across
human history, such an expression of the rule of law is. As fashionable as
political cynicism may be, patience has a place before one reacts to every
scandal with presuming the powerful and guilty will walk free. (It’s an
unfortunate way inattentiveness produces a self-fulfilling prophesy.)

~~~
alfredallan1
>presuming the powerful and guilty will walk free

By and large, they do. The fact that this incident makes to the top of the
“news” is testament. If things were different, an exec going to jail would be
as commonplace as a convicted felon going to jail, and it would hardly be
newsworthy.

~~~
JumpCrisscross
> _The fact that this incident makes to the top of the “news” is testament_

Volkwagen is one of the world's largest companies. That's why it's headline
news.

A billionaire drug company's ex-CEO was arrested last year [1]. Nobody outside
the Arizona, pharmaceutical or opioid crisis circles noticed. Nobody outside
those circles _needs_ to notice.

[1] [https://abcnews.go.com/US/drug-companys-billionaire-ceo-
arre...](https://abcnews.go.com/US/drug-companys-billionaire-ceo-arrested-
nationwide-bribery-scam/story?id=50737965)

~~~
alfredallan1
That was in fact a bribery case - they were convicted for bribing docs to
prescribe their meds where it wasn’t necessary. But you’re right that phrama
company execs are slightly more liable to be actually convicted (Martin
Shkrelli is a very good case in point).

While many in pharma still get off scot free thanks to solid lawyers, one can
only hope for similar results in other industries.

~~~
dsfyu404ed
A sentence of X is a sentence of X regardless of what charge you're convicted
on.

Dig up a massive amount of dirt and sift through it until you find something
that has the kind of sentence you're looking for and you can easily make a
conviction on (regardless of whether or not it has anything to do with the
crime at hand) is prosecuting crimes 101.

Martha Stewart, Bill Clinton, Al Capone, etc, etc.

Now, this is a crappy solution because it basically relies on the
proliferation of criminal law and catch-all laws (both of which are bad IMO)
and the fact that given any random thirteen people you can convince twelve of
them that the thirteenth is a criminal if you have enough information about
the 13th. Ideally charges would be related to the crime but that's not a
practical strategy for prosecuting well connected defendants at present.

~~~
alfredallan1
True… a scumbag in one area wouldn’t hesitate extending their scumbaggery
skills to other areas if they stand to gain something.

------
floatrock
I wonder if the fallout of this will be VW/Audi/Porsche investing more
seriously into electric cars.

Their major bet on fleetwide emissions reductions has been clean diesel, but
clearly that's been all smoke and mirrors. There's been articles suggesting
that _all_ the diesel OEMs are 'optimizing' their emissions testing (another
poster pointed out this leads to an unrealistic ratcheting effect that
furthers unrealistic expectations... regulators think their goal was achieved,
so we set even tighter ones).

In the 2000's, BMW bet big on hydrogen fuel cells. That one hasn't panned out
either... electric is what's left.

~~~
tonyedgecombe
They have announced there will be electric editions of every model in their
range, even including Seat/Skoda.

------
segmondy
This is what happens when management mandates crazy requirements. Same sort of
rubbish happens in tech. Manager comes in and demands "100% code coverage of
unit tests" Or every developer to write at least 100 lines of code each day.
Push enough and you will get what you ask for, but lift the veil and you will
find out that the participants are gaming the system.

------
icebraining
Warning: autoplaying audio.

~~~
joshgel
I thought Chrome fixed this? Websites are getting around it somehow?

[https://developers.google.com/web/updates/2017/09/autoplay-p...](https://developers.google.com/web/updates/2017/09/autoplay-
policy-changes)

------
opportune
If only American CEOs saw justice beyond priced-in “fines.” Good for Germany

~~~
ams6110
What cases are you thinking of, in particular?

Most of what comes to my mind (e.g. Equifax) would be claims falling under
civil law, for which we don't arrest people.

~~~
opportune
Fraud around MBS and CDOs coupled with institutionalized policies of selling
mortgages to unqualified lenders, in the period before the recession

Quantitative hedge funds like Renaissance not paying their fair share of taxes
(this effectively means they used unpaid taxes as arbitrage)

Wells Fargo executives institutionalizing fraud regarding fake accounts to
pump up numbers, both an SEC violation and considered consumer fraud

And in general we as a country need more punishments when you defraud
consumers other than “oops we’ll just pay you back after a class action
lawsuit :)”. That’s not at all a reasonable deterrent - and as I alluded if a
firm’s perceived chances of getting caught/ what they’ll have to pay are low
enough and the rewards are sufficiently high, they may consciously find it
more profitable to break the law. The same goes for fines.

~~~
whatok
How have "quantitative hedge funds" not paid their "fair share" of taxes? Are
you suggesting that they evade taxes?

~~~
JumpCrisscross
I think they're referring to basket options. TL; DR It's a non-story for all
but financial engineering geeks.

"Deutsche Bank and Barclays used the options structure to open accounts for
their clients in their own names, creating the illusion that they owned the
assets. But in fact, the hedge funds exercised complete control over the
assets, executed all the trades and raked in all of the trading profits,
according to the report.

The hedge funds exercised the options soon after the one-year mark and claimed
that the trading profits were eligible for the 20 percent (previously 15
percent) tax rate that applies to long-term capital gains on assets held for
at least a year. The report contends that those options were actually short-
term trades that should have been taxed at the ordinary income rate of 39
percent, which would otherwise apply to investors in hedge funds engaged in
daily trading" [1].

Market makers are taxed differently from other investors. Certain market
makers tried to "rent" their low-tax status to hedge funds. All this resulted
from a weird 1999 law trying to fix a loophole in some other arcane law [2].

Last I heard, the IRS charged the market makers for the investors' short-term
gains [3], and did so retroactively.

[1] [https://www.washingtonpost.com/business/economy/senate-
repor...](https://www.washingtonpost.com/business/economy/senate-report-
barclays-and-deutsche-bank-helped-hedge-funds-skirt-6-billion-in-
taxes/2014/07/21/d732664a-10e5-11e4-8936-26932bcfd6ed_story.html?utm_term=.9f4a75361b4b)

[2] [https://www.bloomberg.com/news/articles/2013-07-03/the-
irs-c...](https://www.bloomberg.com/news/articles/2013-07-03/the-irs-
challenges-a-hedge-fund-tax-trick)

[3] [https://www.nytimes.com/2015/07/09/business/dealbook/irs-
cra...](https://www.nytimes.com/2015/07/09/business/dealbook/irs-cracks-down-
on-hedge-fund-tax-strategy.html)

~~~
whatok
I had a feeling that was what they were referring to but I don't see why
someone operating under current (at the time) tax law should go to jail.

------
stephengillie
In a recent thread about the Daimler diesel recall, a poster claims the issue
is more systemic than just cheating at individual companies.

> _The actual programmer & designer of the software is the supplier of the
> engine control units (ECUs), in most cases Bosch. The software that they
> supply actually already contains these cheating routines. These routines are
> delivered as a part of the software packages, and can be turned on/off with
> some flags.

It is up to the auto company how to set these flags._ [0]

Is it legal for Bosch to sell ECUs that can cheat? Should it remain legal?

[0]
[https://news.ycombinator.com/item?id=17286697](https://news.ycombinator.com/item?id=17286697)

~~~
dsfyu404ed
Cheating and adjustable for compliance in a particular locale are the same
thing. Being able to fine tune how the engine runs to comply with the law and
to "cheat" the law requires the same functionality. Any keyboard that you use
to quote Shakespeare can be employed just as effectively to type dirty words.

~~~
slededit
A routine to detect the exact circumstances of the government emissions test,
including the amount of times the steering wheel was moved was needed to fine
tune the engine?

Its just not credible.

~~~
lttlrck
Isn’t what happens after that condition is detected the critical point? That’s
the part that I’d imagine needs to be modified/tweaked as emission standards
change.

~~~
slededit
What legal basis is there for a car to behave differently during an emissions
test?

Its not like it has to machine learn which jurisdiction its in to tune its
emissions, they know which region its going to be sold in and can make the
appropriate settings. Even if some sort of detection were needed the emissions
test isn't your key as not every car undergoes it, only a sample.

------
WhompingWindows
If corporations are considered people in the USA, will this corporation be
punished for spewing thousands or more of tons of pollution onto our streets
and lying about it? Oh no, corporations can't be tried like people, they just
get to use their money ("free speech") to be people, but when it comes to
accountability, only one man is responsible?

------
w_t_payne
If the culture in the automotive industry is to change, then many more
executives will have to face the consequences of supporting current common
practice.

~~~
sillyquiet
To generalize this, 'If the culture in the <insert> industry is to change,
then many more executives will have to face the consequences of supporting
current common practice.'

------
jasonmaydie
it's funny looking at cars from 2013 extolling the virtues and greatness of
diesel engines vs gasoline ones

------
internet_user
He has not been charged so far, no criminal charges. This is just to keep him
from interfering with witnesses.

~~~
_rpd
Is this usual in Germany? To me it seems to be a fairly extraordinary step,
almost theatrical.

~~~
lis
I would say it's at least not uncommon. Danger of collusion /
"Verdunkelungsgefahr" ist an often cited reason for that.

------
mathinpens
people have died and will continue to die because of excessive emissions and
this program of evasion conducted by audi and volvo was willful and malicious.

