Hours after Herbert Diess, VW’s boss since last month, told shareholders the carmaker needed a “more honest” culture, the US Department of Justice dropped a bombshell. US Attorney General Jeff Sessions and other senior Trump administration officials charged Martin Winterkorn, the CEO of VW between January 2007 and September 2015, with conspiracy and wire fraud over his involvement in the German carmaker’s diesel emissions cheating, also known as Dieselgate.
“If you try to deceive the United States, then you will pay a heavy price,” Mr. Sessions said. “The indictment unsealed today alleges that Volkswagen’s scheme to cheat its legal requirements went all the way to the top of the company.”
Mr. Winterkorn who resigned days after the scandal became public in September 2015, could face up to 25 years in jail and a fine of up to $275,000 if a US court finds him guilty. For the executive, however, the charges are largely symbolic, because Germany does not extradite its citizens to the US or other countries outside the European Union. If he leaves Germany, he does run the risk of being detained and sent to the US.
It is another matter altogether for VW, which rigged 11 million diesel cars worldwide and saw its shares lose a third of their value in 2015. If Mr. Winterkorn is found culpable, shareholders suing VW for the lower value of their stock stand a much better chance of getting compensation. In Germany alone, investors have filed damages totaling €9 billion ($10.7 billion). They claim VW should have informed shareholders earlier of the emissions fraud. VW has always said it correctly published market sensitive information on time.
The Department of Justice alleges Mr. Winterkorn had received briefings on the scam in 2014 and again in July 2015, but failed to stop it.
Investors will need months, if not years, before the US or German courts reach a decision on the role of VW's executives. If judges do issue a ruling, it could either mean relief or the start of another legal battle to pay compensation to shareholders. It is clear though, that if one of its board members is found guilty of having violated US laws, it will be hard for the company to maintain that its management properly informed the financial markets.
The Department of Justice alleges Mr. Winterkorn, a 70-year old who enjoys a €1.1 million annual pension, had received briefings on the scam in May 2014 and again in July 2015, but failed to stop it. German prosecutors had already launched an investigation of Mr. Winterkorn and three dozen others in January last year, suspecting them of fraud in relation to Dieselgate. The executive, repeatedly Germany's best-paid manager grossing more than €10 million per year, and the carmaker said they only learned of the scandal in September 2015.
German prosecutors also launched investigations in 2016 and 2017 into possible market manipulation. As part of these probes, local authorities are examining the roles of Mr. Winterkorn as well as Mr. Diess, who was head of the VW passenger brand in 2015, and Hans Dieter Pötsch, the then-finance executive and currently chairman of the supervisory board. As yet nobody has been formally charged in Germany and of course, all managers involved are innocent until proven otherwise. But critics have already said that the German authorities have been taking too long with the investigation, possibly because of the importance of the auto industry to the country.
US authorities first revealed the scam in September 2015 and have gone after the company and its employees with gusto. Two former VW managers are serving jail terms of seven years and three years respectively, six others have been indicted by US authorities and VW has already agreed to US settlements and fines totaling $22 billion.
The US accusations highlight that Dieselgate, which has cost VW €25 billion so far, will haunt Mr. Diess and the carmaker for years to come — and most likely put a dent in any travel plans Mr. Winterkorn had for his retirement.
Gilbert Kreijger is an editor with Handelsblatt Global. To contact the author: [email protected]