Sometimes you just do not think that things cannot get any weirder. The Man From FCPA has seen some great corporate FUBARs over the years, but the one announced last week may come close to taking the cake. Further in the world of compliance and ethics, it may provide one of greatest post-Enron teaching moments for some time to come. Of course I am referring to the burgeoning scandal involving Volkswagen and its diesel engine cars, intentionally designed to cheat emission standard testing, through software cleverly nicknamed “defeat devices.”  

Last week the U.S. government charged that VW had sold more than 500,000 Volkswagen and Audi model cars in the United States with software that was designed to meet emission standards for diesel engines when tested, but pumped out 30 to 40 percent above limit emissions when on the road. Like many of us, I waited over the weekend to hear what the company’s response might be this week. VW not only acknowledged that the U.S. government was correct, that the company had designed software to evade emissions standards—it then said the amount of cars affected topped 11 million.

VW stock price dropped by 20 percent and €13 billion of market capitalization was erased in a single day. The company has not even begun to estimate the recall and repair costs for these vehicles. Moreover, because VW’s intentional actions violate the Clean Air Act in the United States, the fines alone could range as high as $17 billion. A class action suit for VW purchasers alleges fraudulent marketing of the cars to consumers as “clean diesels.”

From the compliance and ethics perspective, this can only be seen to rival Siemens in breadth and scope of unethical (if not illegal) behavior embedded in an entire organization. These “defeat devises” had been installed by VW for at least six years, from 2009-2015. The VW scandal demonstrates the absolute necessity for compliance to be a part of a business’s DNA going forward. If VW was willing to break the law on something as basic in the auto industry as emissions, what else was the company willing to do?

This is not a situation of cutting corners; this was intentional, deliberate, and well-thought out planning to violate laws. A letter from the Securities and Exchange Commission to VW USA about its internal controls might seem appropriate about now.

In a written statement the company said, “Volkswagen does not tolerate any kind of violation of laws whatsoever.” Indeed.

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