VW executive who was in charge of U.S. emissions rules is arrested

The Volkswagen executive who once was in charge of complying with U.S. emissions regulations was arrested during the weekend in Florida and accused of deceiving federal regulators about the use of special software that cheated on emissions tests.

Oliver Schmidt, who was general manager of the engineering and environmental office for VW of America, was charged in a criminal complaint with conspiracy to defraud the U.S. government and wire fraud.

Schmidt is the second VW employee to be arrested as part of an ongoing federal investigation into the German automaker, which has admitted that it programmed diesel-powered vehicles to turn pollution controls on during tests and to turn them off in real-world driving. The scandal has cost VW sales and has tarnished its brand worldwide.

He was ordered held Monday at a hearing in Miami, where prosecutors argued that he posed a flight risk if released. He faces another hearing Thursday. After that he probably will be taken to Detroit, where the Justice Department investigation is based.

The complaint, dated Dec. 30, accuses Schmidt of conspiring with other Volkswagen executives to mislead U.S. regulators about why Volkswagen vehicles emitted more pollution on the road than during tests. Schmidt “offered reasons for the discrepancy” other than the fact that the company was cheating on emissions tests through illegally installed software on its diesel vehicles, according to court documents.

Tests commissioned by the nonprofit International Council on Clean Transportation in 2014 found that certain Volkswagen models with diesel engines emitted more than the allowable limit of pollutants. More than a year later, Volkswagen admitted to installing the software on about 500,000 2-liter diesel engines in VW and Audi models in the U.S. Later the company said some 3-liter diesels also cheated.

After that study, Schmidt, in an apparent reference to VW's compliance with emissions, wrote a colleague to say, “It should first be decided whether we are honest. If we are not honest, everything stays as it is.”

He later emailed another executive with an analysis that listed possible monetary penalties from the Environmental Protection Agency.

“Difference between street and test stand must be explained. (Intent = penalty),” Schmidt wrote, according to the complaint.

Schmidt's bio for a 2012 auto industry conference said he was responsible for ensuring that vehicles built for sale in the U.S. and Canada comply with “past, present and future air quality and fuel economy government standards in both countries.” It says he served as the company's direct factory and government agency contact for emissions regulations. The criminal complaint says Schmidt was promoted in 2015 as a principal deputy of a senior manager.

Schmidt's attorney, David Massey, said in court Monday that his client has assets in the U.S., or the assets of friends, totaling about $1 million that would secure his bond. He said Schmidt had been cooperating with the FBI on the emissions probe and had no intent to flee. Massey also said Schmidt was arrested while on vacation in South Florida and had no idea he was going to be charged with a crime while in the U.S.

But Justice Department prosecutor Ben Singer said that Schmidt had been evasive with regulators and told a judge that Schmidt was a flight risk.

Volkswagen said Monday that it is cooperating with the Justice Department in the probe. “It would not be appropriate to comment on any ongoing investigations or to discuss personnel matters,” it said in a statement.

Herbert Diess, a member of Volkswagen AG's board of management, appeared in Detroit on Sunday evening to introduce a new version of VW's Tiguan SUV on the eve of the North American International Auto Show. He would not comment when asked if some Volkswagen executives refused to come to the auto show for fear of being arrested.

“I'm here, at least,” he said.

Asked about the Justice Department investigation, Diess said he hopes it's resolved “as soon as possible.”

The company has agreed to either repair the cars or buy them back as part of a $15-billion settlement approved by a federal judge in October. Volkswagen agreed to pay owners of 2-liter diesels up to $10,000 depending on the age of their cars.

In October, VW engineer James Robert Liang of Newbury Park, Calif., pleaded guilty to one count of conspiracy to defraud the government and agreed to cooperate with investigations in the U.S. and Germany. Liang was the first person to enter a plea in the wide-ranging case, and authorities were expected to use him to go after higher-ranking VW officials.

A grand jury indictment against Liang detailed a 10-year conspiracy by Volkswagen employees in the U.S. and Germany to repeatedly dupe U.S. regulators by using sophisticated emissions software. The indictment detailed emails between Liang and co-workers that initially admitted to cheating in an almost cavalier manner, then turned desperate after the deception was uncovered.

The complaint against Schmidt also references two cooperating witnesses in the company's engine development department, who have agreed to speak with investigators in exchange for not being prosecuted.

The EPA found that the 2-liter cars emitted up to 40 times the legal limit for nitrogen oxide, which can cause human respiratory problems. 

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UPDATES:

3:15 p.m.: This article was updated with details from the hearing in Miami.

This article was originally published at 10:05 a.m.

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