One of the more unexplored issues from the Volkswagen emissions-testing scandal is why no EU regulator or member country’s regulators discovered the massive fraud and deception engaged in by VW in its 10-year campaign around its defeat device. Instead it fell to investigators in the United States and this country’s Environmental Protection Agency to discover the company had broken the law. EU regulators were no doubt humiliated that their U.S. counterparts brought the matter first to the public’s attention and then brought the first regulatory actions. If the EU regulators were not humiliated, they well should have been.

Now this issue has moved a more central part of the ongoing narrative as a draft report from a European Parliament investigation has determined EU regulators engaged in “maladministration” for the failure to determine or even investigate whether the EU ban on defeat-devices similar to the ones employed by VW was being violated. The report went on to note, “In spite of awareness…on possible illegal practices by manufacturers, the commission neither undertook any further technical or legal research or investigation”. The investigation even noted conflicts of interest between EU-approved testing centers and auto manufacturers. Finally and for good measure, the report also chastised national auto regulators in EU member-states as none of these agencies even bothered to look for defeat devices in autos prior the revelations in the United States. Pretty damning stuff from a parliamentary report.

This sad saga brings up the triad of roles in any regulatory system. Business has a role, the public has a role, and the government has a role to set the regulations and then enforce the regulations. If this government role is not fulfilled or non-existent, the triangle collapses on its own weight. Similar consistent failures will not only erode public confidence in the regulatory process but also endangers the public from the high pollution content devolved from the VW autos.

The Man From FCPA often advocates business solutions to legal problems, focusing on the marketplace to derive innovative and efficient solutions to legal parameters set by regulators. However if the regulators fail or worse, refuse to perform their function, the entire system falls apart and leads to a catastrophic scandal such as the one which befell VW.