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Volkswagen's emissions scandal is one example of the Obama administration's failure to go after corporate criminals

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U.S. President Barack Obama pauses while answers question during his news conference at the Asia-Pacific Economic Cooperation (APEC) in Lima, Peru, Sunday, Nov. 20, 2016. Associated Press/Pablo Martinez Monsivais

  Just a couple of weeks before the end of the Obama administration, the Justice Department has begun to come around on the importance of holding individual executives accountable for corporate crimes.

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But the current prosecution of the Volkswagen diesel emissions scandal brings into focus how easy it would have been to proceed this way for the last eight years, especially in the cases of financial institutions involved in the 2008 crisis and its aftermath. 

Over the weekend, the FBI arrested Oliver Schmidt, who led the key U.S. regulatory compliance office at Volkswagen, for conspiracy to commit fraud. 

According to the indictment, Schmidt repeatedly lied to regulators, denying that Volkswagen used special software to cheat emissions tests for its diesel vehicles, when he knew that was company strategy. These “defeat devices” allowed VW cars on American roads that emitted up to 40 times the legal limit of nitrogen oxide (NOx). If convicted, Schmidt would face five years in prison. 

The indictment accompanies an expected settlement of a criminal investigation against Volkswagen, in which the company will actually have to plead guilty to criminal misconduct and pay billions in fines. That’s on top of $16 billion in class-action civil settlements involving half a million cars, where customers can either sell their vehicles back to Volkswagen or have them fixed to reduce NOx emissions. 

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People gather around the Volkswagen's Phideon as it is presented during the Auto China 2016 auto show in Beijing April 25, 2016. REUTERS/Damir Sagolj/File Photo
People gather around the Volkswagen's Phideon as it is presented during Auto China 2016 auto show in Beijing Thomson Reuters

Just forcing a guilty plea on a car company is an upgrade on previous settlements with General Motors and Toyota. But the VW scandal broke just as the Justice Department promised in an internal memo to prioritize individual prosecutions of corporate criminals, after facing criticism for failing to do so after the financial crisis. The so-called Yates memo, named after Deputy Attorney General Sally Yates, said that companies must turn over officials responsible for corporate crime, including senior management. The VW case offered a key test of whether the Yates memo would be adhered to when the target was a giant global conglomerate. 

Prosecutors obeyed the Yates memo by following the chain of command. In September, Robert Liang, who worked in the company’s engine development department, pled guilty to conspiracy charges, agreeing to cooperate with investigators in exchange for a lighter sentence. In the Schmidt complaint, the FBI revealed that it has two other unnamed cooperating witnesses from Volkswagen, who are also working with investigators on the case. 

Any law enforcement professional would call this “police work 101.” The FBI identified lower-level employees involved in circumventing U.S. emissions tests, flipped them to work with the investigation and moved on to find those responsible for authorizing and directing both the scandal and the response. 

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A Volkswagen Touareg diesel is tested in the Environmental Protection Agency's cold temperature test facility in Ann Arbor, Mich. AP Photo/Carlos Osorio, File

Schmidt is the first such higher-ranking official charged, but probably not the last. According to the complaint, Schmidt and his colleagues learned in March 2014 about a West Virginia University study that found that VW cars would perform differently on the road than in emissions tests. That was over a year before the VW executives finally disclosed the defeat devices to regulators. Schmidt wrote specifically in a chart that failure to explain what researchers discovered about increased emissions would lead to “indictment.” 

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In July 2015, Schmidt attended a meeting at VW headquarters, where the subject of handling regulator questions was broached. “Rather than advocate for disclosure of the defeat device to regulators, VW executive management authorized its continued concealment,” the complaint reads. Right after that meeting, Schmidt followed orders and lied to the Environmental Protection Agency and California Air Resources Board about the emissions discrepancies. 

At another meeting in Germany in August 2015, Schmidt huddled with “other co-conspirators” to plot how to handle an upcoming meeting with regulators. Senior VW managers approved a plan for “continuing to conceal the defeat device.” But one of the FBI’s cooperating witnesses blew the whistle a week later, disclosing the defeat devices at the meeting “in direct contravention of instructions from his management.” 

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Henny Ray Abrams/AP

The narrative in the complaint directly implicates senior management at Volkswagen in covering up the defeat devices. It’s almost certain that more executives will face criminal charges as a result. That could lead all the way to Volkswagen’s former CEO Martin Winterkorn

So after a methodical investigation, prosecutors secured cooperation from knowledgeable insiders, amassed evidence and found top executives responsible for criminal actions. The prosecutorial playbook works, in other words, and claims of difficulties in finding explicit culpability among executives do not hold water, given the VW case. 

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There is no reason that the same process could not have been used for Bank of America, JPMorgan Chase, Goldman Sachs and many other institutions that played a role in the financial crisis. We had the names of the traders who marketed and sold dodgy mortgage securities to investors without disclosing the risks. We had millions of false documents issued to courtrooms and county offices nationwide, with forged signatures attached to them. That’s a wealth of raw material from which to begin an effort to locate who authorized the fraudulent materials, and who directed those people to authorize them, and so on, until law enforcement reached every C-suite at every major financial institution in America. 

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Eric Thayer/Reuters

Waiting nearly eight years to put this detective work into practice begs the question of why it laid dormant for so long. Moreover the buzzer-beating conduct in the Volkswagen case could go for naught. Within weeks, Alabama Sen. Jeff Sessions will likely take over running the Justice Department. There’s no guarantee he will follow through with Volkswagen executive criminal indictments; in fact, senators on the Judiciary Committee should ask him that question at his confirmation hearings, which begin today. 

For what it’s worth, Sessions did say in 2010 that DoJ shouldn’t hesitate to charge companies that break the law, and Volkswagen actually wants to close its settlementwith the current administration rather than facing the unknown with the new attorney general. But off-the-cuff statements in the Senate and actual responsibility at Justice are two different things. We simply don’t know how Sessions will act and whether the Yates memo will have any meaning. 

Of course, prosecutors shouldn’t need a memo to know the importance of seeking accountability for all crimes, regardless of wealth and power. Seeing this principle enforced in the case of Volkswagen would give Americans renewed confidence in the justice system. But it would also remind them that it took President Obama’s Justice Department nearly two entire terms to restore that principle. It’s hard not to view that as too little and too late.

This story was originally published by  The Fiscal Times.

Read the original article on The Fiscal Times. Copyright 2017. Follow The Fiscal Times on Twitter.
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