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.
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 . Shareholders lost and creditors lost (as did employees and those down the supply chain).
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.
In this case, shareholders are barely affected.
Their power is spread too thinly for any of them to do much, they have no way of communicating, and the bars for things like minority shareholder lawsuits are almost unreachable.
Not saying shareholders shouldn't take a haircut - by all means let them! - just that you're going to need to punish execs too if you want to deter this type of behaviour.
I don't know what shareholder accountability would do. It may just further incentivize liability dodging by altering the dept/equity ratios. It just doesn't seem right to me that shareholders continue enjoying the fruits of this crime, with a fine amounting to no more than a daily fluctuation in shareprice.
This is the point I wanted to be clear on: this is not a minor fraud. Certain engine types have had a massive advantage in European markets. These happened to be engines manufactured and used by VW. These engines and the tax regime around them made certain, very popular models viable. This was all based on fraud.
Adding insult to injury, this happens to be a tax regime the vw both authored and defrauded.
1bn/70bn was the cost to shareholders, relative to market cap. VW Has a high loan to equity ratio, so this understates how insignificant the fine was, relative to the financial proceeds from the crime.
Similar to what the US gov did with GM (streamlined bankruptcy/administration).
This requires political will, of course.
As the Takata example shows (and Enron and Arthur Andersen), a big enough fine will wipe out a business.
I'm hairsplitting this because in certain industries, reputational risk is a much stronger deterrent that legal consequences (severe as they may be).
Absolutely worth a watch if you have a chance: https://www.imdb.com/title/tt1016268/
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 :
> 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 , 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).
Once upon a time that regulator was 'the press'. This is the sort of area where independent media support functional democracies.
The engineer goes to a reporter. The reporter keeps the engineer's identify secret. If and when the police get serious about a prosecution, the engineer can then identify himself to authorities. Should the authorities decide not to investigate after reading the media reports (a very common situation) then the engineer's identity remain a secret held by the reporter.
But this all breaks down these days when authorities simply shout 'fake news' and ignore media reports.
Yes, because greenhouse gases are a bigger threat to people in the long term than NOx. And because everyone agrees on that the actions of the car companies are not so serious.
And because nearly ever manufacturer engaged in such activity you can't then say everyone is going to jail.
This is not how the world works, in my experience. See: groups of protestors getting arrested, etc.
Additionally, this was not just an innocent mistake. If it were merely an error on the company's part, they would still owe damages for the harm they caused. However, this was deliberate. The executives have criminal liability for defrauding the regulatory authorities and their customers. Even if the damage had been negligible, they would still have been guilty of defrauding the regulators. In this case, executives who signed off on false regulatory declarations or asked others to, should go to prison.
Now I know Germany has more of a civil law system, so it might be different, but the common law approach I suggest above seems just to me.
Punishing those responsible individuals is the only way to change future behavior of individuals that will eventually hold such positions.
Also, you're completely ignoring how many people these corporations employ that had nothing to do with this. What do you propose for those laid off after a "haircut?"
Individual bad actors or a cohort of bad actors often are what make these companies bad in the first place so punishment for them along with financial penalty in the form of fines is pretty close hitting everyone who should get hit as is.
Prosecutors can and do pierce the corporate veil . Otherwise, losing money on their investment seems like fitting punishment for disinterested shareholders.
They are paid millions to do this and they are free to leave the company or switch career.
If your 401k invested in VW - which is very likely - are you also supporting its criminal activity?
That is to say, if mutual funds (which your 401k likely comprises) stand to lose significantly to unethical behavior, then they will be a LOT more choosy about who to invest in.
Your argument to the extreme about jailing parents/teachers is missing my discussion point.
It's not deterministic but it does create a positive feedback loop of ethics compliance.
No one pushed a super-educated and super rich CEO to do anything. His greed did. Shareholders that sold got lucky, those that didn't are paying the price with tens of billions in penalties.
Jail CEOs and a lot of problems will be solved.
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.)
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.
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 . Nobody outside the Arizona, pharmaceutical or opioid crisis circles noticed. Nobody outside those circles needs to notice.
While many in pharma still get off scot free thanks to solid lawyers, one can only hope for similar results in other industries.
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.
The point I was trying to make is the percentage of convicted felons getting jail time ought to be close to the percentage of companies (i.e. their executives) guilty of egregious violations and abuses getting jail time.
The fact that German industry reputation got a huge blow might be a reason. It's one of those things that hurt more than the little guy.
Things take time which is hard to deal with considering other things in our lives move faster than ever. I did ask a friend once that if the FCC getting rid of net neutrality requires Google or SpaceX to launch a better way to connect to the internet does that further justify capitalism? I.E. Do failures of capitalism not exists over a long enough time horizon?
*This was just a thought not something I subscribe to.
There are personalities that see conspiracy in every shadow.
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.
Most of what comes to my mind (e.g. Equifax) would be claims falling under civil law, for which we don't arrest people.
If their actions weren't worthy of jail, the law should be changed. They created an incentive system which guaranteed that lower-level employees would act badly.
Instead, even after clawbacks, they retired ahead of the game by 8-9 figure sums.
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.
It has been .
If senior management knew about the fake accounts and did nothing or worse, covered it up, they should go to jail. But we have no evidence of that. In fact, senior management had incentives to boost revenue and profit. Fake accounts don't increase revenue. Even before fines, they decrease profits. And we have no evidence of unusual insider sales or exercises while Wall Street was being duped.
Management instituted bad incentives and went up and down with everyone else. Lots of them were fired as the company faced civil consequences. It would be absurd to jail people for something they (a) did not know about and (b) had incentives to know about.
Even if we can't find a smoking gun email or audio recording, charges analogous to negligent homicide would be appropriate here.
Nobody died for having a fake checking account. (People have died because prosecutors overreached.)
Those extra charges did things like trigger defaults on car loans, cascading to vehicle repossession. For people who don't have large reserves, taking a vehicle away can lead to losing your job and sending you and your family into a downward spiral.
The second reason is a bit of informed speculation on my part. Our banks have a very symbiotic relationship with Washington, especially when it comes to RMBS. The role of the GSEs is especially important here since they in large part determine lending standards. And once you are there eventually there will be politicians involved. While I would have love to seen Barney Frank being called to testify at a trial it was never going to happen. Trying to cleanly slice off the prosecution of a few bank CEOs was always going to be impossible because of where it would lead.
RenTec is hardly the first people to have a dispute with the IRS. Berkshire Hathaway won a $500M dispute with them last year .
In general I agree with your last paragraph, I wish fraud was treated as an actual crime more often and people went to jail. HSBC should not be a going concern in the US after they knowingly laundered money for drug cartels. But alas that is not the world we live in.
Also several high-profile executives such as Angelo Mozillo settled for high fines and bars from financial services as a result of SEC enforcement. You can find some of the relevant SEC enforcement actions and their outcomes here https://www.sec.gov/spotlight/enf-actions-fc.shtml although that page appears a little out of date.
There were to my knowledge prosecutions also for mortgage fraud etc but just in and of themselves ill-conceived securitizations constitute a fraud.
"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" .
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 .
Last I heard, the IRS charged the market makers for the investors' short-term gains , and did so retroactively.
The IRS’s wording suggests that other funds may have also been improperly using basket options. I’m admittedly not even close to being a tax law expert so I can’t really offer much more analysis
I’m pretty sure I was wrong that the taxes were being used as arbitrage, though. The allegedly unpaid taxes seem to be based on payments out of the fund to employees
We’re one week out from Elizabeth Holmes’ criminal indictment.
The FBI arrested a VW executive in Florida in connection with this same scandal . And last year, Insys’ CEO was arrested .
Watch your confirmation bias.
Broadly speaking, you get fined for fucking up. You get jailed for covering it up.
American commercial law largely protects company Boards and executives from their own stupidity. This is necessary, since the difference between madness and genius can only be ascertained ex post facto.
Sadly, in the "Nash game" of international commerce a country wants to keep other countries' companies on check, while leaving its own free to pollute (elsewhere) and bend regulations.
That's the reason for having international regulations.
> 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. 
Is it legal for Bosch to sell ECUs that can cheat? Should it remain legal?
There was clearly nothing honest in this scandal, but I'm sure a Bosch engineer can make an honest case that many of these flags are testing and debugging modes that need to be present to fully integrate the product into the engineering and QA pipeline. I've certainly shipped product that has some hidden modes and features used just for my testing and healthcheck infrastructure.
Its just not credible.
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.
This is not surprising, because a hard requirement for pretrial detention  is that it is highly likely that the suspect committed a criminal offense . The risk of either flight or obstruction of justice is an additional requirement on top of him being a suspect.
 http://www.spiegel.de/wirtschaft/unternehmen/audi-chef-ruper... (in German)