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Volkswagen AG (VW) today announced that it had submitted a defense statement to the Braunschweig District Court regarding a violation of disclosure obligations. In the statement, VW stated its belief that it had complied with and fulfilled its obligations under German capital markets law.

The press statement goes on to say the roots of the Dieselgate scandal began in 2005, when VW decided to market diesel vehicles in the US, using the EA189 diesel engine as the basis of a new powertrain. VW then realised that US emissions levels for diesel engines were strict, in the order of 31 mg/km of nitrogen oxides (NOx), six times lower than the corresponding EU5 standard.

In order to comply with emissions testing and meet objectives within the timeframe and budget of the EA189 project, “an un-named group at levels below the Group’s Management Board in the powertrain development division decided to modify the engine management software.” With this modification, emissions values were generated in bench testing that differed substantially from those under real driving conditions.

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The issue came to light when a study published by the International Council on Clean Transportation (ICCT) in May 2014 highlighted the emissions irregularities and the California Air Resources Board (CARB) was notified. On May 23, a memo was forwarded to Martin Winterkorn, then-Chairman of the VW Management Board.

While Winterkorn’s reaction to this memo was not recorded, a second memo dated November 14 was forwarded to Winterkorn, that referred to a cost framework of approximately 20 million euro for the diesel issue in North America. This did not initially receive particular attention at the management levels of Volkswagen. In the statement, VW says, “the issue was “treated as one of many product issues facing the company” and “did not initially receive particular attention at the management levels of Volkswagen”.

During a meeting with CARB on December 2 2014, VW offered to recalibrate the first and second generation EA 189 type diesel engines in the course of regular service work that was already scheduled in the North American market for December 2014. Subsequent tests conducted by CARB showed that improvements in the calibration for the affected engines in the US were not sufficient to reduce the nitrogen oxide emissions to an acceptable level.

At the end of August 2015, VW technicians gave a full explanation of the technical causes for the irregularities discovered regarding the emission of nitrogen oxides from its diesel vehicles in the US to lawyers from the VW legal department as well as to the attorneys from US law firm Kirkland & Ellis.

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VW was advised that in the past, defeat device violations under US environmental law by other car manufacturers had been sanctioned with settlement payments that were not especially high for a company the size of VW. The highest fine imposed at the time, in 2014, was USD100 million, and affected about 1.1 million vehicles, which was twice the estimated 500,000 VW diesels that it was looking at rectifying.

This sum corresponded to a fine of not more than approximately USD91 per vehicle. VW assumed that the diesel matter could be resolved with US authorities by disclosing the software modification, agreeing on appropriate measures to restore vehicle compliance with the law and the payments of potential fines in line with prior U.S. settlements.

At the moment Jones Day investigators – appointed by VW – are sifting through enormous amounts of data, of which 102 terabytes have been secured. As previously announced, Volkswagen will report preliminary results of the investigation in the second half of April.

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