The challenges for Volkswagen’s internal investigation

Step 1 in the playbook for a company accused of misconduct is a promise of complete cooperation with the government. Step 2 is the key, because the company must then conduct a thorough internal investigation that will deliver the information necessary to assure regulators and prosecutors that the problem has been dealt with and those responsible have been identified.

It is the second step that seems to be tripping up Volkswagen these days. The automaker is offering a type of amnesty to some of its workers who provide information that the law firm Jones Day needs to respond to multiple inquiries into how vehicles avoided emission standards in the United States and Europe.

Without information that identifies who was responsible and whether senior management was aware of the violations, Volkswagen will be left looking like it was unwilling to fulfill its promise of cooperation. That is almost sure to bring down the wrath of the Justice Department, which identifies complete disclosure of wrongdoing as the cornerstone of its assessment of whether to file criminal charges against a company.

The story out of Volkswagen certainly has shifted since the Environmental Protection Agency issued a notice on Sept. 18 that the company installed a “defeat device” in vehicles equipped with 2-liter diesel engines designed to circumvent emissions tests in violation of the Clean Air Act. A second notice of violations on Nov. 2 covers Porsche and Audi vehicles with a 3-liter diesel engine, which Volkswagen has denied.

Initially, the software used to fool the emissions tests was described as “irregularities” in the resignation statement of its former chief executive, Martin Winterkorn, just a few days after the first E.P.A. charges.

“I am stunned that misconduct on such a scale was possible in the Volkswagen group,” he said, implying that it was a conspiracy of a small group of rogue employees.

Michael Horn, the chief of the company’s American subsidiary, told Congress a few weeks later that the defeat device was the work of “a couple of software engineers who put this in for whatever reason,” an explanation he acknowledged was “very hard to believe.”

It turns out that explanation is more than just hard to believe. Volkswagen disclosed recently that it underreported the level of carbon dioxide produced by 800,000 vehicles in Europe, including some with regular gasoline engines, based on information provided by a whistle-blower in the company.

The company’s environmental problems seem to be expanding, making it hard to come across as cooperative when it does not appear to have a handle on the extent of the potential misconduct. If Volkswagen has any hope of producing a report from its internal investigation that shows it was cooperative, it needs to shake loose enough information to provide assurances that there are no more problems in how it complied with emission standards and other vehicle reporting requirements.

Thus, the amnesty offer asks employees to step forward to report what they know about violations on the promise that they will not be fired or face damage claims from the company. The program is open only until Nov. 30, and applies to workers covered by a collective bargaining agreement, which leaves out corporate managers.

The question is whether the pressure to provide information will work, and how quickly Volkswagen can put together a report that will satisfy regulators and prosecutors in the United States and Europe.

There is only so much Volkswagen can offer its employees to encourage them to be forthcoming. The letter from Herbert Diess, the chief executive of the Volkswagen division, pointed out that the company could not protect them from criminal charges.

Will they be willing to risk a potential criminal prosecution for their role in the design or installation of a defeat device? A lawyer would probably recommend against making any disclosure because the situation is a form of prisoner’s dilemma in which the employees might avoid any negative consequences if everyone stays quiet, even though it could cost the company mightily.

The likelihood of a criminal prosecution is usually less for those in the lower ranks. But there is always the concern about being made into a scapegoat, especially when the company put the blame initially on “a couple of software engineers.”

Volkswagen’s management made it clear early on that senior officials were unaware of the defeat device. The company’s supervisory board emphasized in a statement that Mr. Winterkorn had “no knowledge of the manipulation of the emissions data” before any internal investigation had even started. So in assessing who is more likely to be thrown under the proverbial bus, lower-level employees might not trust that management will be looking out for their interests.

That concern may be compounded by the Justice Department’s recent push to force corporations to identify culpable individuals inside the organization as a prerequisite to being considered cooperative in an investigation. A memorandum to federal prosecutors from Sally Q. Yates, the deputy attorney general, issued just nine days before the E.P.A. filed the first notice of Volkswagen’s violations, states that “to be eligible for any cooperation credit, corporations must provide the Department all relevant facts about the individuals involved in corporate misconduct” — with the “any” underlined for emphasis.

Another issue Volkswagen faces is that the whole purpose of the software was to evade the law, so it might be open to question how forthcoming anyone will be about their own role in a cover-up. The problem with inviting wide-scale whistle-blowing is that it can be hard to judge who is telling the truth and who may be settling an old score or trying to gain protection from charges of misconduct by deflecting attention to others.

So for the lawyers at Jones Day conducting the investigation, the challenge will be sorting out the informational wheat from the chaff, which could drag out the process, despite the pressure to explain what happened as quickly as possible.

Even if Volkswagen is successful in getting enough information that it can provide a comprehensive report on how it evaded the law, that alone will not ensure that prosecutors will view the company as fully cooperative. Of late, the Justice Department has emphasized that the strength of a compliance program is an important factor in assessing corporate culpability.

In a recent speech, Leslie R. Caldwell, the assistant attorney general in charge of the criminal division, discussed the hallmarks of an effective compliance program. The first question she identified is, “Does the institution ensure that its directors and senior managers provide strong, explicit and visible support for its corporate compliance policies?”

Answering that affirmatively might be difficult for Volkswagen, given that the use of the defeat device lasted for years and its senior management deny having even the slightest inkling that it had been installed. The amnesty program might be seen as almost a tacit admission that the company did not have anything close to an effective compliance program in place.

For Volkswagen, the appeal to its employees for information may be something of a last-ditch effort to ferret out information needed for a credible internal investigation that will generate at least some credit for cooperation. The company better hope its workers will be forthcoming, otherwise if faces the possibility of being labeled uncooperative, which will raise the price of any resolution of the investigations.

© The New York Times 2015