WASHINGTON – Today U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy joined U.S. Attorney General Loretta E. Lynch at a press conference at the U.S. Department of Justice to announce that Volkswagen AG (VW) has agreed to plead guilty to three criminal felony counts, and pay a $2.8 billion criminal penalty, as a result of the company’s long-running scheme to sell approximately 590,000 diesel vehicles in the U.S. by using a defeat device to cheat on emissions tests mandated by the EPA and the California Air Resources Board (CARB), and by lying and obstructing justice to further the scheme.

In separate civil resolutions of environmental, customs, and financial claims, VW has agreed to pay $1.5 billion. This includes EPA’s claim for civil penalties against Volkswagen in connection with Volkswagen’s importation and sale of these vehicles, as well as U.S. Customs and Border Protection (CBP) claims for customs fraud. In addition, the EPA agreement requires injunctive relief to prevent future violations. The agreements also resolve alleged violations of the Financial Institutions Reform, Recovery and Enforcement Act.

“When Volkswagen broke the law, EPA stepped in to hold them accountable and address the pollution they caused,” said EPA Administrator McCarthy. “EPA’s fundamental and indispensable role becomes all too clear when companies evade laws that protect our health. The American public depends on a strong and active EPA to deliver clean air protections, and that is exactly what we have done.”

“Volkswagen’s attempts to dodge emissions standards and import falsely certified vehicles into the country represent an egregious violation of our nation’s environmental, consumer protection, and financial laws,” said Attorney General Lynch. “Today’s actions reflect the Justice Department’s steadfast commitment to defending consumers, protecting our environment and our financial system, and holding individuals and companies accountable for corporate wrongdoing. In the days ahead, we will continue to examine Volkswagen’s attempts to mislead consumers and deceive the government. And we will continue to pursue the individuals responsible for orchestrating this damaging conspiracy.”

Volkswagen Clean Air Act Civil Settlement

(Washington, D.C.) – Through a series of three partial settlements, the EPA has resolved a civil enforcement case against Volkswagen AG, Audi AG, Dr. Ing. h.c. F. Porsche AG, Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC, and Porsche Cars North America, Inc. (collectively “Volkswagen”), subject to reservations set forth in each of the partial settlements. This was achieved through three separate partial settlements. First, on June 28, 2016, the United States lodged with the United States District Court for the District of Northern California the first partial settlement with certain of these Volkswagen entities addressing vehicles containing 2.0 liter diesel engines (the “2.0 liter partial settlement”). On October 25, 2016, the court approved the 2.0 liter partial settlement. Second, on December 20, 2016, the United States lodged with the court the second partial settlement with Volkswagen addressing vehicles containing 3.0 liter diesel engines (the “3.0 liter partial settlement”). Third, on January 11, 2017, the United States lodged with the court the third partial settlement with Volkswagen addressing civil penalties and injunctive relief to prevent future violations (the “third partial settlement”).

Subject to their reservations, these settlements resolve allegations that Volkswagen violated the Clean Air Act (“CAA”) by the sale of approximately 590,000 model year 2009 to 2016 diesel motor vehicles equipped with “defeat devices.” The allegations were set forth in a complaint originally filed by the United States on behalf of the EPA on January 4, 2016, and amended on October 7, 2016, alleging that these vehicles are equipped with defeat devices in the form of computer software designed to cheat on federal emissions tests. The major excess pollutant at issue in this case is oxides of nitrogen (NO_x), and is a serious health concern.

Concurrent with the third partial settlement, among other resolutions: the United States Department of Justice resolved a criminal case against Volkswagen AG with a plea agreement for the offenses of conspiracy, obstruction of justice, and entry of goods by false statement; and the United States Customs and Border Protection resolved civil fraud claims with Volkswagen arising from the illegal importation of affected vehicles. Details on these resolutions are not included on this page.

Overview of Companies
Defendants in these CAA partial settlements are Volkswagen AG, Audi AG, Dr. Ing. h.c. F. Porsche AG, Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga Operations, LLC, and Porsche Cars North America, Inc. (collectively here “Volkswagen”).

Volkswagen AG is headquartered in Wolfsburg, Germany and is one of the world’s leading automobile manufacturers and the largest carmaker in Europe. This is the parent company of Volkswagen Group of America, Inc., Volkswagen Group of America Chattanooga, LLC, and Audi AG.

Volkswagen Group of America, Inc. is a wholly owned subsidiary of Volkswagen AG. It operates a manufacturing plant in Chattanooga, Tennessee and houses the U.S. operations of several brands of cars.

Volkswagen Group of America Chattanooga Operations, LLC operates a manufacturing plant in Chattanooga, Tennessee and is as a subsidiary of Volkswagen Group of America, Inc.

Audi AG has been owned by Volkswagen since 1969 and produces Audi vehicles.

Dr. Ing. h.c. F. Porsche AG is a German corporation, headquartered in Stuttgart, Germany, that is owned by Volkswagen AG. The company designs, develops, manufactures, and distributes vehicles, engines, and other technical products.
Porsche Cars North America, Inc. is a wholly-owned subsidiary of Dr. Ing. h.c. F. Porsche AG, headquartered in Atlanta, Georgia. Porsche Cars North American, Inc. is the exclusive importer of Porsche vehicles for the United States. The company provides Porsche vehicles, parts, service, marketing and training for its 189 dealers in the United States.
Clean Air Act Certification Requirements and Violations
The CAA and its regulations aim to protect human health and the environment, in part, by reducing harmful emissions from mobile sources of air pollution. The CAA partial settlements concern light-duty motor vehicles. Light-duty vehicles must satisfy tailpipe emission standards for certain air pollutants, including NOx. Pursuant to the CAA, the EPA administers a certification program to ensure that every vehicle introduced into United States commerce satisfies applicable emission standards. Under this program, manufacturers apply to the EPA for a certificate of conformity (“COC”) and must demonstrate in their applications that representative test vehicles meet emission standards. The EPA issues COCs to vehicle manufacturers based on these applications. A COC covers only those new motor vehicles that conform, in all material respects, to the design specifications described in the manufacturer’s application for that COC. Manufacturers are prohibited from selling any new motor vehicle unless that vehicle is covered by an EPA-issued COC.

On January 4, 2016, and as amended on October 7, 2016, the United States filed a complaint against the Volkswagen entities alleging violations of the CAA with regard to approximately 590,000 diesel vehicles sold in the U.S. Specifically, the U.S. complaint alleges that each of these vehicles contains, as part of the engine control module, certain computer algorithms and calibrations that cause the emissions control system of those vehicles to perform differently during normal vehicle operation and use than during emissions testing. The U.S. complaint alleges that these computer algorithms and calibrations are prohibited defeat devices under the CAA, and that during normal vehicle operation and use, the cars emit levels of NOx significantly in excess of the EPA compliant levels.
Vehicle Recall: Getting Vehicles Off the Road or Reducing their Harmful Emissions

CAA 2.0 Liter Partial Settlement
Under the CAA 2.0 liter partial settlement, Volkswagen must remove from commerce in the United States or perform an approved emissions modification on at least 85 percent of the affected 2.0 liter vehicles by June 2019. VW must also meet a separate 85 percent recall rate in California. If VW fails to reach the 85 percent recall rate, VW must pay additional funds into the mitigation trust in an amount equal to $85 million for each percentage point by which it fell short of the national recall target, and $13.5 million for each percentage point by which it fell short of the California recall target.
In order to achieve the 85 percent recall rate, Volkswagen must offer owners and lessees of the vehicles the opportunity to have their vehicles bought back by Volkswagen at a fair replacement value of the vehicle as of September 17, 2015, or to have their leases terminated at no cost. This buyback or lease termination option will be available to consumers for two years.

Additionally, if Volkswagen proposes an emissions modification to EPA and California Air Resources Board (CARB) and the agencies approve it, Volkswagen must also offer owners and lessees the option of an emissions modification. The EPA and CARB will assess any proposed emissions modification according to detailed requirements including a substantial reduction in NOx emissions. Any approved emission modification will require extensive testing by Volkswagen and may include both software changes and new hardware. If approved, an emissions modification will reduce NOx emissions from the vast majority of vehicles by approximately 80 to 90 percent compared to their original condition. VW must provide consumers with an emissions modification disclosure that has been approved by EPA and CARB and that contains a clear and accurate description regarding all impacts of the emissions modification on the vehicle, including emissions levels as compared with the limits to which the vehicles were originally certified, and any impacts on fuel economy or vehicle maintenance. Any modified vehicle will also be covered by an extended warranty covering the emissions control system.

Under two related settlements concurrently approved by the court, a Federal Trade Commission (FTC) stipulated order and a class action settlement agreement, Volkswagen has also agreed to pay eligible consumers compensation for alleged consumer damages related to marketing and sale of the 2.0 liter vehicles with defeat devices. Volkswagen estimates that the total cost of achieving the 85 percent recall rate required under the CAA 2.0 liter partial settlement, and concurrently satisfying the FTC stipulated order and class action settlement agreement, will be up to $10.033 billion.

Certain consumer notices and the claims administration for the buyback and lease termination program for 2.0 liter vehicles have been coordinated and consolidated with the FTC order and related class action settlement. Further information on those settlements is available for consumers at www.VWCourtSettlement.com and www.AudiCourtSettlement.com

Volkswagen may resell or export vehicles that are bought back or for which the lease is terminated only after performing an EPA and CARB approved emission modification. If there is no approved emissions modification, the vehicles will be recycled or scrapped.

CAA 3.0 Liter Partial Settlement
Under the CAA 3.0 liter partial settlement, Volkswagen must remove from commerce in the United States or perform an approved emissions modification on at least 85 percent of the affected 3.0 liter vehicles. Volkswagen’s specific obligations for these vehicles differ depending on the technology generation of the vehicles – referred to as the generation 1 or the generation 2 vehicles.

Volkswagen must meet the 85 percent recall rate for the generation 1 affected 3.0 liter vehicles by November 30, 2019, and the generation 2 affected 3.0 liter vehicles by May 31, 2020. VW must also meet separate 85 percent recall rates in California. If VW fails to reach the 85 percent recall rate for the generation 1 vehicles, VW must pay additional funds into the mitigation trust in an amount equal to $5.5 million for each percentage point by which it fell short of the national recall target, and $900,000 for each percentage point by which it fell short of the California recall target. If VW fails to reach the 85 percent recall rate for the generation 2 vehicles, VW must pay additional funds into the mitigation trust in an amount equal to $21 million for each percentage point by which it fell short of the national recall target, and $5.5 million for each percentage point by which it fell short of the California recall target.

Vehicle owners and lessees will receive updated information from Volkswagen, Audi and Porsche concerning their available buyback or modification options, and can also obtain information about these options at: www.VWCourtSettlement.com and www.AudiCourtSettlement.com

3.0 Liter Generation 1 Vehicles
In order to achieve the 85 percent recall rate for the 3.0 liter generation 1 vehicles, Volkswagen must offer owners and lessees of these older 3.0 liter vehicles the option to have their vehicle bought back by Volkswagen, or to have their leases terminated at no cost.

This buyback or lease termination option will be available to consumers for two years.
Additionally, if Volkswagen proposes a generation 1 emissions modification to EPA and CARB and the agencies approve it, Volkswagen must also offer owners and lessees the option of an emissions modification. The EPA and CARB will assess any proposed emissions modification according to detailed requirements that include a substantial reduction in NOx emissions. Any approved emission modification will require extensive testing by Volkswagen and may include both software changes and new hardware. If approved, a generation 1 emissions modification will reduce NOx emissions from the majority of vehicles by approximately 80 percent compared to their original condition. VW must provide consumers with an emissions modification disclosure that has been approved by EPA and CARB and that contains a clear and accurate description regarding all impacts of the emissions modification on the vehicle, including emissions levels as compared with the limits to which the vehicles were originally certified, and any impacts on fuel economy or vehicle maintenance. Any modified vehicle will also be covered by an extended warranty covering the emissions control system.

The affected 3.0 liter generation 1 diesel vehicles eligible for a buyback and that may also be eligible for an emissions modification are:
– Model year 2009 – 2012 Volkswagen Touareg
– Model year 2009 – 2012 Audi Q7

3.0 Liter Generation 2 Vehicles
In order to achieve the 85 percent recall rate for the 3.0 liter generation 2 vehicles, Volkswagen must recall and modify these vehicles so that the vehicles meet their certified exhaust emissions standards, if such a technical solution is approved by EPA and CARB.

If EPA and CARB approve such an emissions compliant recall, VW must provide consumers with a clear and accurate description regarding all impacts of the emissions compliant recall on the vehicle, including emissions levels as compared with the limits to which the vehicles were originally certified, and any impacts on fuel economy or vehicle maintenance. Any modified vehicle will also be covered by an extended warranty covering the emissions control system. In the unlikely event that Volkswagen is unable to return generation 2 vehicles to their certified exhaust emissions standards, Volkswagen must offer to buy back the generation 2 vehicles or terminate leases at no cost to the customer. In this circumstance, Volkswagen could also seek approval of an emissions modification plan to reduce the emissions from these generation 2 vehicles.

The affected 3.0 liter generation 2 diesel vehicles eligible for an emissions compliant recall, pending EPA and CARB approval, are:
– Model year 2013 – 2015 Audi Q7
– Model year 2014 – 2016 Audi A6, A7, A8, Q5
– Model year 2013 – 2016 Porsche Cayenne
– Model year 2013 – 2016 VW Toureg
Mitigation
The CAA 2.0 liter partial settlement will require Volkswagen to fund a $2.7 billion mitigation trust fund. The mitigation trust fund will pay for defined eligible projects that reduce NOx (eligible mitigation actions). The total $2.7 billion funding for the mitigation trust fund is intended to fully mitigate the total, lifetime excess NOx emissions from the 2.0 liter vehicles. NOx is the major excess pollutant from these vehicles and is a significant health concern.
The mitigation trust will be administered by a trustee once a trustee is selected. Next, potential government beneficiaries must elect to become beneficiaries under the CAA 2.0 liter partial settlement and the trust agreement. All 50 States, Puerto Rico, the District of Columbia, and Indian tribes may elect to become beneficiaries. Each participating beneficiary will receive a specific allocation of funds from the total $2.7 billion that can be used for any of the listed eligible mitigation actions. The allocation structure is primarily based on the number of registered illegal Volkswagen vehicles within the boundaries of the beneficiary. Therefore, those beneficiaries with more illegal 2.0 liter cars will receive a larger allocation of trust funds.

Eligible mitigation actions include projects to reduce NOx from heavy duty diesel sources near population centers, such as large trucks that make deliveries and service ports, school and transit buses, and freight switching railroad locomotives. Thus, for example, eligible mitigation actions could include replacing or repowering older engines for newer engines at a rail switchyard, or could include replacing older city transit buses with new electric-powered transit city buses. Eligible mitigation actions may also include, in a more limited capacity, charging infrastructure for light duty zero emission passenger vehicles. Beneficiaries have the flexibility to choose which projects on the list of eligible mitigation actions are the best options for their citizens.

Under the CAA 3.0 liter partial settlement, Volkswagen must contribute an additional $225 million in funding to the mitigation trust fund. This additional funding is intended to fully mitigate the total, lifetime excess NOx emissions from the 3.0 liter vehicles. As with the 2.0 liter partial settlement, each participating beneficiary will receive a specific allocation of funds from the total $225 million that is primarily based on the number of registered illegal Volkswagen vehicles within the boundary of that beneficiary. These funds can be used for any of the listed eligible mitigation actions.
Any member of the public interested in specific eligible mitigation actions should contact their State attorney general’s office.
Zero Emission Vehicle (ZEV) Investment
The CAA 2.0 liter partial settlement requires Volkswagen to invest $2 billion in ZEV charging infrastructure and in the promotion of ZEVs. To that end, Volkswagen will invest $800 million in California and $1.2 billion throughout the rest of the nation, over the next decade. Volkswagen will invest more in California than in other states due to California’s pivotal role in the case and the market demand for charging infrastructure in California. The ZEV investments required by the CAA 2.0 liter partial settlement are intended to address the fact that consumers purchased these illegal vehicles under the mistaken belief that such vehicles were lower-emitting than others. Examples of ZEV investment for which Volkswagen may obtain credit against the $1.2 billion commitment include, for example, level 2 charging at multi-unit dwellings, workplaces, and public sites, direct current fast charging facilities accessible to all vehicles utilizing non-proprietary connectors, and brand-neutral education or public outreach that builds or increases public awareness of ZEVs.

Volkswagen will submit a series of ZEV investment plans to CARB for review and approval, for ZEV investments in California. Volkswagen will submit a series of ZEV national investment plans to EPA for review and approval based on objective criteria, for ZEV investments in the rest of the country. The CAA 2.0 liter partial settlement requires Volkswagen to provide notice and opportunities for certain government agencies to provide suggestions, observations, and offers of assistance or support for potential ZEV investments that VW may make under its national plans. Volkswagen must provide reasonable notice of these opportunities on www.vw.com and www.VWCourtSettlement.com. Therefore, more detailed information for government agencies interested in learning about this process for public comment should visit these websites. Any member of the public interested in Volkswagen ZEV plans should contact their State Attorney General’s Office.
Actions to Prevent Future Violations
Volkswagen will take various measures to prevent future problems, including among other things the following (some but not all of the following requirements apply to the Porsche defendants). Pursuant to the third partial settlement, Volkswagen will ensure the personnel who test their vehicles for emissions compliance are separate from the personnel who design their vehicles. Volkswagen will also establish a steering committee to ensure compliance with the Clean Air Act. The company will perform portable emission measurement system (PEMS) testing on their vehicles, including gasoline vehicles, and follow strict procedures when developing new vehicles. The company will establish a whistleblower system, and survey employees to gauging compliance, among other things, with United States laws relating to environmental compliance. Lastly, an independent auditor will thoroughly assess Volkswagen’s compliance with this settlement.
Health Effects and Environmental Benefits
NOx pollution contributes to the formation of harmful smog and soot, exposure to which is linked to a number of respiratory- and cardiovascular-related health effects as well as premature death. Children, older adults, people who are active outdoors (including outdoor workers), and people with heart or lung disease are particularly at risk for health effects related to smog or soot exposure. Nitrogen dioxide formed by NOx emissions can aggravate respiratory diseases, particularly asthma, and may also contribute to asthma development in children.
Civil Penalty
Under the third partial settlement, Volkswagen will pay $1.45 billion civil penalty for the alleged civil violations of the Clean Air Act.
State and Regional Partners
The State of California, on behalf of its California Air Resource Board and the California Attorney General, joined the United States in both the 2.0 liter partial settlement and the 3.0 liter partial settlement.