Oliver Schmidt

THE degree to which Volkswagen AG sought to put US authorities off the scent of its conspiracy to defraud the US Government, its US dealers and its American car buyers has been revealed in court documents in Detroit as a senior German VW engineer was this week paraded in a Miami dock in orange prison garb and chains.

The engineer, Oliver Schmidt, 48, who had been in the US on holidays, was arrested by the FBI in Florida as he boarded a flight back to Germany. He was taken to court and held in custody where he remains as a flight risk.

According to the Justice Department Mr Schmidt face what could effective be a life sentence. He is charged with eleven counts of felonies which government officials said would attract a cumulative sentence of up to 169 years in prison.

Mr Schmidt is the second VW executive to be arrested with six more arrests to come (see separate stories) but his case is important for revealing for the first time how VW executive management mishandled the unfolding catastrophe of the defeat device in Volkswagen diesel engines.

Mr Schmidt has been accused of orchestrating a cover-up in his dealings with US Government officials over the VW diesel defeat device – even after it was known that the engines were emitting up to 40 times more emissions than were allowed.

Court documents against Mr Schmidt filed in Detroit explosively allege that Mr Schmidt, after telling his superiors in a meeting in Germany that the game was up, was ordered to return to the US and pretend to work with US emissions officials on the reasons why the 2.0-litre diesels were spewing fumes while on the road but not in tests; even though he knew the real reason was the defeat device fitted to cheat the test.

It should be first decided whether we are honest. If we are not honest, everything stays as it is,” Oliver Schmidt in a letter to a VW colleague.

The documents allege that Mr Schmidt and other engineers conspired to keep the EPA and the Californian Air Resources Board (CARB) from learning the truth about the defeat device for more than a year by conducting a charade; pretending to be developing software fixes apparently to address the EPA’s concerns knowing all along about the defeat software causing the high emissions levels.

The court papers detail how VW’s reaction in Wolfsburg to the explosive on-road test data was to close ranks and cover up.

But now prosecutors have the advantage of four former VW engineers who have turned state’s evidence in return for immunity from prosecution or reduced penalties.

The court documents reveal for the first time what was happening inside VW AG and VW Group of America once independent US tests revealed the fraud.

Mr Schmidt was the general manager in charge of the environment and engineering office of VW Group of America from 2012 until February 2015 before returning to Wolfsburg where he was appointed principal deputy of engine development for VW AG.

The FBI documents allege that Mr Schmidt learned in early April 2014 that the International Council for Clean Transportation (ICCT) was to publish a report showing that VW 2.0-litre diesel engines were producing up to 40 times more NOx in on-road testing than is official VW laboratory testing. This was about 18 months before the existence of the defeat device eventually became public.

The documents say that Mr Schmidt wrote to a VW colleague the same day saying: “It should be first decided whether we are honest. If we are not honest, everything stays as it is.”

He went on: “ICCT has stupidly just published measurements of NAR (North American Region) diesel off-cycle, not good.”

The court papers say that CARB and the EPA began working with VW to find out why there was a discrepancy. They began “asking questions that became increasingly more specific and detailed”.

In May 2014 Schmidt emailed the then CEO of VW Group of America a document outline the “possible consequences/risks” resulting from the ICCT study in which he outlined potential monetary penalties per vehicle of up to $US37,500 on 500,000 to 600,000 affected vehicles.

He said: “The difference between street and test stand must be explained (intent=penalty).”

He went on to say that modifications could be made to the engines with defeat devices but they would not comply with US limits and warned that “the EPA was starting a research project on this topic”.

VW employees assured VW executive management that US regulators were not aware of the defeat device. Rather than advocate for disclosure of the defeat device to US regulators, VW executive management authorised its continued concealment.” FBI court papers

The papers went on to say that engineers in the VW engine development group formed an ad hoc task force to formulate responses to questions coming from US regulators.

The court papers said that: “VW employees determined not to disclose to US regulators that the tested vehicles operated with a defeat device. Instead, VW employees pursued a strategy of concealing the defeat device in responding to US regulators, while appearing to cooperate.”

The papers allege that from then until August 2015, nearly 12 months later, “VW employees and their co-conspirators continued to offer and cause to be offered software and hardware fixes and explanations without revealing the underlying reason for the higher NOx measurements on the road”.

Things came to a head in July 2015 when US regulators threatened to ban VW vehicles for sale in the US from 2016.

The papers allege that VW management requested a briefing and in preparation for that briefing Schmidt was fully briefed on the defeat device. At this point an internal briefing pointed out that not only was there potential for VW cars to be banned from the US market, there was potential for engineers to face indictment.

The FBI said that in July 2015 Schmidt and other engineers briefed “VW executive management” in Wolfsburg on “the existence, purpose and characteristics of the defeat device”.

The papers said: “In the presentation, VW employees assured VW executive management that US regulators were not aware of the defeat device. Rather than advocate for disclosure of the defeat device to US regulators, VW executive management authorised its continued concealment.”

In August 2015 Schmidt and other engineers were still talking to the EPA blaming “technical issues”, “discrepancies”, “abnormalities” and “irregularities” for the NOx issue.

In the lead-up to a meeting with CARB to get the all-important green light to sell 2016 models in the US market, as VW engineers developed a plan on what they would tell regulators, the FBI alleges that one of the engineers pulled out of the CARB meeting “so that he would have to consciously lie”.

But the game was up on August 19, 2015 when one of the engineers, who has since turned state’s evidence, told a CARB official about the defeat device and that it was “intentionally installed” to cheat US emissions tests.

By John Mellor