Fiat Chrysler Automobiles became the second major automaker in four years (after Volkswagen) to resolve allegations with the government that it engaged in an emissions-cheating scandal in violation of the federal Clean Air Act and California law. With several other automakers facing related investigations, a comparison of these two cases may signal what’s to come.
On Jan. 10, Fiat Chrysler agreed to pay $397 million in total civil penalties to resolve allegations that it violated environmental and consumer protection laws by using “defeat device software” to circumvent emissions testing. In a statement announcing Fiat Chrysler’s settlement, Principal Deputy Associate Attorney General Jesse Panuccio warned that “this case demonstrates that steep penalties await corporations that engage in such egregious violations.”
The proposed $397 million in civil penalties includes $305 million to the U.S. Environmental Protection Agency (EPA), the Department of Justice, and the California Air Resources Board (CARB) for environmental claims; $13.5 million to the California Attorney General for consumer claims and mitigation expenses; $72.5 million to various other states for environmental and consumer claims; and $6 million to U.S. Customs and Border Protection for illegally importing 1,700 noncompliant vehicles. The proposed settlement must still be approved by the U.S. District Court for the Northern District of California.
In a separate settlement with California, Fiat Chrysler will pay an additional $19 million to mitigate excess emissions from 13,325 vehicles in California, on top of the updates it must make to the more than 100,000 noncompliant diesel vehicles sold or leased in the United States. The vehicles in question are the Ram 1500 and Jeep Grand Cherokee vehicles equipped with “EcoDiesel” 3.0-liter engines, model years 2014 through 2016.
“This settlement is a direct result of the enhanced screening and testing procedures CARB developed to uncover the Volkswagen diesel cheating scandal,” said CARB Chair Mary Nichols. Volkswagen’s emissions-testing scandal—which opened a Pandora’s Box of investigations into other automakers—erupted in September 2015, when Volkswagen confessed it had sold millions of cars with “defeat devices” to evade federal standards on auto emissions.
Shortly after those revelations emerged, the EPA and CARB sent a letter to all manufacturers of light-duty diesel vehicles, notifying them that these enhanced screening and testing methods would be performed on diesel vehicles to test for comparable defeat devices. That’s when the EPA uncovered Fiat Chrysler’s defeat device software.
In both cases, it was alleged that Volkswagen and Fiat Chrysler installed software in certain diesel vehicles that would cause nitrogen oxide emissions from vehicles to be within legal limits during emission testing, but to exceed legal limits during ordinary operation. The EPA first notified Fiat Chrysler of the alleged Clean Air Act violations in January 2017.
Unlike Volkswagen, however, Fiat Chrysler did not admit guilt: “The settlements do not change the company’s position that it did not engage in any deliberate scheme to install defeat devices to cheat emissions tests,” Fiat Chrysler said in a statement. “Further, the consent decree and settlement agreements contain no finding or admission with regard to any alleged violations of vehicle emissions rules.”
Another major difference between Volkswagen’s and Fiat Chrysler’s situation is the number of vehicles at issue. According to the EPA, Fiat Chrysler sold 104,000 vehicles with defeat devices, compared to the nearly 600,000 sold by Volkswagen.
The difference in the scope of the problem explains, in part, the differences in civil penalties. Compared to Fiat Chrysler’s $397 million in civil penalties, Volkswagen paid $1.45 billion in civil penalties; an additional $2.7 billion toward a mitigation trust fund to mitigate the total, lifetime excess nitrogen oxide emissions from its 2.0-liter vehicles; and an additional $225 million toward a mitigation trust fund to mitigate the total, lifetime excess nitrogen oxide emissions from its 3.0-liter vehicles.
Fiat Chrysler’s proposed civil settlement does not resolve any potential criminal liability or individual prosecutions. Nor does it include a class-action settlement filed Jan. 10, in which Fiat Chrysler agreed to pay $300 million in consumer relief. In 2017, Volkswagen agreed to a $2.8 billion criminal penalty, along with individual charges brought against several executives and employees for their roles in the nearly 10-year conspiracy.
Both Volkswagen and Fiat Chrysler in their individual consent decrees agreed to many similar compliance measures. Other legal and compliance professionals in the automaker industry may want to take note, as they provide insight into the sort of ethics and compliance obligations the government expects.
“We have implemented rigorous new validation procedures and updated our training programs to ensure continued compliance with the increasingly complex regulatory environment,” Mark Chernoby, Fiat Chrysler’s head of North American safety and regulatory compliance, said in a statement.
Under terms of the consent decrees, both Volkswagen and Fiat Chrysler have reorganized their corporate structure so that employees involved in certification testing and monitoring for purposes of vehicle certification under the Clean Air Act and California law are separate from the product development team. Both Volkswagen and Fiat Chrysler have further agreed to implement technical process reforms to minimize the likelihood of future Clean Air Act violations.
Both agreements also called for the appointment of an independent compliance auditor for a period of three years to oversee and assess the effectiveness of all reforms. The consent decrees require that the audit include the review of relevant documents and procedures; on-site observation of selected systems and procedures at sample sites, including internal controls, record-keeping, and internal audit procedures; meetings and interviews of relevant employees, managers, and directors; and analyses, studies, and testing of the compliance program and associated processes.
Other ethics and compliance measures employed by Fiat Chrysler include an updated Code of Conduct; an improved “Ethics Helpline”; and a “Leave No Doubt” campaign, initiated in October 2017 “to encourage employees, contractors, suppliers, and dealers to report issues concerning vehicle safety, emissions, or regulatory compliance through the Ethics Helpline,” according to the consent decree.
Volkswagen similarly implemented a whistleblower system. It also now includes in its annual employee survey a question designed to monitor the progress of its integrity campaign introduced in June 2016. Additionally, for teams whose work includes matters concerning compliance with U.S. environmental laws, it must include questions in relevant managers’ guides to the annual employee survey gauging compliance with U.S. laws or regulations relating to environmental compliance.
Volkswagen further agreed to establish a centralized process to monitor and address employee survey responses relating to the integrity campaign. Additionally, Volkswagen was required to “establish and maintain one or more Group Steering Committees, for monitoring and complying with current and future U.S. laws regarding vehicle certification and vehicle emissions,” according to the consent decree.
More to come?
While Fiat Chrysler’s settlement is the latest civil settlement regarding emissions cheating, it’s likely not the last.
“This [Fiat Chrysler] case demonstrates that steep penalties await corporations that engage in such egregious violations.”
Jesse Panuccio, Principal Deputy Associate Attorney General, Department of Justice
Other automakers caught up in current investigations or class-action lawsuits for similar allegations—in the United States and elsewhere around the world—include Volkswagen’s luxury brand Audi, Daimler, Ford Motor Company, General Motors, Mitsubishi, and Suzuki. Nissan, too, admitted last year that it falsified data concerning emissions and fuel economy tests at all but one of its Japanese vehicle production plants.
Non-automakers that played a role in emissions cheating are also being held liable. On Jan. 10, German parts components-maker Robert Bosch, which supplied rigged engine control devices, agreed to pay $27.5 million as part of a proposed settlement agreement with consumers. Additionally, it will pay $103.7 million to 50 U.S. states and territories. The agreement resolves multi-state investigations pertaining to Volkswagen and Fiat Chrysler diesel vehicles sold in the United States.
“By entering into the settlements, Bosch does not accept liability. Nor does Bosch admit to the factual allegations of the U.S. plaintiffs or U.S. states,” Bosch stated. “The settlements reflect Bosch’s desire to move forward and to spare the company the very substantial costs and the burden on the company’s resources that would be required to litigate these issues.”
In another action, IAV, a German company that engineers and designs automotive systems, agreed in December 2018 to a $35 million criminal fine with the U.S. Department of Justice for misleading the EPA and U.S. consumers about whether certain Volkswagen- and Audi-branded diesel vehicles complied with U.S. vehicle emissions standards.
“We take these matters very seriously and see this resolution as an important step forward for our company,” Kai-Stefan Linnenkohl, president and member of the IAV management board, said in a statement. “The misconduct identified does not reflect who we are as a company today. We are committed to a culture of compliance and accountability at IAV and to serving as a reliable partner for our customers and the automotive industry.”
Compliance officers and corporate defense teams in the automaker industry or those affiliated with it should review carefully the recent consent decrees of Volkswagen and Fiat Chrysler for key insight into the sort of compliance obligations the government will expect moving forward.