VW Defendants’ Independent Compliance Auditor Issues First Annual Report

On August 27, Larry D. Thompson, the Independent Compliance Auditor (ICA) for the so-called “VW Defendants” (VW), issued the first annual report on compliance by the VW Defendants (including Volkswagen AG (VW)) with their injunctive relief obligations stemming from federal and state consent decrees regarding VW’s emissions cheating (Report).  (N.B.: The Report, dated August 17, addresses only the VW Defendants’ civil obligations pursuant to the consent decrees.  Thompson has separate duties as Independent Compliance Monitor under the Plea Agreement in United States v. Volkswagen AG, No. 16-cr-20394-SFC (E.D. Mich.), and the Monitor’s Plea Agreement reports are not comparable to the ICA’s annual reports, in part because “the Plea Agreement reports include a broader evaluation of the ‘effectiveness’ of the overall compliance program of Volkswagen AG and its subsidiaries and affiliates” (Report, p. 4).)

The Report includes sections on the following:

  • VW Defendants’ Reporting of Violations (pp. 6-8): The VW Defendants identified and reported two violations of the injunctive relief provisions: failure to add certain questions to employee survey “managers’ guides”, and failure to give 10 days’ notice (per the California Consent Decree) to the California Air Resources Board (CARB) of testing using the Portable Emissions Measurement System (PEMS) (Report, pp. 6-7).
  • General Obligations under the Consent Decrees (pp. 8-9): This section included the following issues:
    • VW Defendants’ cooperation with the ICA: On this issue, the Report stated that the Volkswagen Project Management Office “has cooperated with the ICA,” but that
      • “[o]ccasionally, the ICA has contended with the VW Defendants’ reluctance to share certain information. This reluctance has included the VW Defendants’ use of redactions in documents provided to the ICA, based on claims of attorney-client privilege, attorney work-product, and data privacy. . . . The ICA has discussed this issue with VW Defendant personnel on numerous occasions throughout the reporting period, and has documented its concerns. With respect to the VW Defendants’ assertions of privilege and work-product, the ICA has disagreed with some of the VW Defendants’ assertions. The VW Defendants have promised further improvements in their provision of information, and increased the frequency of discussions with the ICA regarding this topic. The ICA is committed to working with the VW Defendants to resolve all redaction issues and other withholding of information.” (P. 8)
    • Appointment of an Environmental Compliance Officer.
    • The VW Defendants’ submission of their first Annual Report to the Justice Department and California authorities.
  • Recommended Actions to Achieve Compliance (pp. 9-10): This section sets forth the ICA’s seven recommendations to the VW Defendants to achieve compliance with the consent decrees, including:
    • Designing and implementing additional, ongoing monitoring and auditing procedures to assess compliance by the VW Defendants with their obligations under the Consent Decrees (p. 9);
    • Preparing and providing a comprehensive written analysis of the implementation of the so-called “Golden Rules” (i.e., a set of thirteen mandatory processes, supported by a total of 109 “minimum requirements” that prescribe the implementation of certain controls and best practices to optimize the operation of the Internal Control System in the VW Defendants’ product development process) (pp. 9-10).
  • Injunctive Relief Obligations Related to the Product Development Process (pp. 11-27). This section reports on obligations pertaining to segregation of duties between product development and certification testing (pp. 11-15), establishment and maintenance of Group Steering Committees for monitoring and complying with U.S. laws regarding vehicle certification and vehicle emissions (pp. 15-17), PEMS testing (pp. 17-20), definition of managers’ responsibilities (pp. 21-22), and implementation of the “Golden Rules” (pp. 22-27).
  • Efforts by the VW Defendants to Establish and Maintain a Whistleblower System (pp. 27-30).
  • Efforts by the VW Defendants Regarding the Employee Survey and Managers’ Guides (pp. 30-32).
  • Efforts by the VW Defendants Regarding Codes of Conduct (pp. 32-35): This section reports on the VW Defendants’ efforts to ensure that their corporate Codes of Conduct included provisions regarding both environmental protection and responsibility for compliance.
  • Efforts by the VW Defendants Regarding Third-Party and Internal Audits (pp. 35-46).

Note: The most critical language in the ICA report, as quoted above, is with regard to the VW Defendants’ resistance to information-sharing and redaction of documents.  In a joint news conference on August 27, Thompson and Hiltrud D. Werner, a member of Volkswagen’s board who is responsible for integrity, reportedly said “they were trying to work out differences over access to documents amicably.”  Nonetheless, it should be noted that – allowing for the fact that devising and implementing effective compliance measures in any large organization takes significant amounts of time and effort – the ICA report is devoid of any indication that Thompson regards the VW Defendants as having made substantial progress toward compliance with its civil obligations.

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