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VW enters a new penalty phase

Tom Fox | August 6, 2017

The Man From FCPA might well have expected Volkswagen to have some more good news, as the company continues to distance itself from the emissions-testing scandal. That good news for the company, however, may be yet delayed a bit longer as reports have recently appeared about a new twist on the emissions-testing scandal. This new phase of the scandal may portend longer, deeper, and even more structural issues than have been seen to-date.

In July, the European Union’s antifraud office, OLAF, announced it was recommending criminal charges against at least two company officials over loans the European Investment Bank (EIB) gave to VW to promote its (fraudulent) claims of positive environmental performance around the company’s deiseal auto fleet. The allegations are over some €400 million in loan guarantees. Not surprisingly, when the loans were originally made, there was no information provided to the authorities on the defeat devices or the fraudulent nature of VW’s overall conduct around deiseal engines. Equally unsurprising, it is illegal under German law to make material misrepresentations when seeking funding from government entities.

This new development could impair VW in a variety of ways going forward. Since 1990, the EIB has provided some €4.5 billion in loan guarantees to the company, with over 30 percent “aimed at technologies to improve environmental performance of cars.” If this source of bank loans or funding is dried up, it could put VW in an even greater cash pinch than it currently finds itself. Moreover, with its huge bet on the deisel car market largely in tatters and the advent of new auto technologies such as electric cars popularized by Tesla, VW may well be starting from the rear, trying to catch up to this new market. If one of its major sources of funding or loan guarantees is impaired, the emissions-testing scandal and the attendant penalty phase could be entering new and potentially even more damaging territory for the company.