Volkswagen official arrested on conspiracy charge over emissions scandal

The Volkswagen executive who once was in charge of complying with U.S. emissions regulations was arrested during the weekend in Florida and accused of deceiving federal regulators about the use of special software that cheated on emissions tests.

Oliver Schmidt, who was general manager of the engineering and environmental office for VW of America, was charged in a criminal complaint with conspiracy to defraud the U.S. government and wire fraud.

Schmidt is the second VW employee to be arrested as part of an ongoing federal investigation into the German automaker, which has admitted that it programmed diesel-powered vehicles to turn pollution controls on during tests and to turn them off in real-world driving. The scandal has cost VW sales and has tarnished its brand worldwide.

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He faces an initial hearing in Miami Monday afternoon and likely will be taken to Detroit, where the Justice Department investigation is based, to face arraignment at a later date. It wasn't immediately clear if he had a lawyer.

The complaint, dated Dec. 30, says Schmidt in 2015 misled regulators who asked why Volkswagen vehicles emitted higher emissions on the road than during tests. Schmidt "offered reasons for the discrepancy" other than the fact that the company was cheating on emissions tests through illegally installed software on its diesel vehicles, according to court documents.

Accused of making false representations

The complaint says Schmidt and other VW executives conspired to violate the Clean Air Act by making false representations about the environmental quality of their cars.

Tests commissioned by the non-profit International Council on Clean Transportation in 2014 found that certain Volkswagen models with diesel engines emitted more than the allowable limit of pollutants. More than a year later, Volkswagen admitted to installing the software on about 500,000 2-litre diesel engines in VW and Audi models in the U.S. Later the company said some 3-litre diesels also cheated.

After that study, Schmidt, in an apparent reference to VW's compliance with emissions, wrote a colleague to say, "It should first be decided whether we are honest. If we are not honest, everything stays as it is."

He later emailed another executive with an analysis that listed possible monetary penalties from the Environmental Protection Agency.

"Difference between street and test stand must be explained. (Intent=penalty)," Schmidt wrote, according to the complaint.

Schmidt's bio for a 2012 auto industry conference said he was responsible for ensuring that vehicles built for sale within the U.S. and Canada comply with "past, present and future air quality and fuel economy government standards in both countries." It says he served as the company's direct factory and government agency contact for emissions regulations. The criminal complaint says Schmidt was promoted in 2015 as a principal deputy of a senior manager.

Volkswagen said in a statement Monday that it is co-operating with the Justice Department in the probe. "It would not be appropriate to comment on any ongoing investigations or to discuss personnel matters," the statement said.

Herbert Diess, a member of Volkswagen AG's board of management, appeared in Detroit Sunday evening to introduce a new version of VW's Tiguan SUV ahead of the North American International Auto Show. He wouldn't comment when asked if some Volkswagen executives refused to come to the auto show for fear of being arrested.

"I'm here, at least," he said.

Asked about the Justice Department investigation, Diess also wouldn't comment, but said he hopes it's resolved "as soon as possible."

VW will repair or buy back vehicles

The company has agreed to either repair the cars or buy them back as part of a $15 billion settlement approved by a federal judge in October. Volkswagen agreed to pay owners of 2-litre diesels up to $10,000 depending on the age of their cars.

In October, VW engineer James Robert Liang, of Newbury Park, California, pleaded guilty to one count of conspiracy to defraud the government and agreed to co-operate with investigations in the U.S. and Germany. Liang was the first person to enter a plea in the wide-ranging case, and authorities were expected to use him to go after higher-ranking VW officials.

A grand jury indictment against Liang detailed a 10-year conspiracy by Volkswagen employees in the U.S. and Germany to repeatedly dupe U.S. regulators by using sophisticated emissions software. The indictment detailed emails between Liang and co-workers that initially admitted to cheating in an almost cavalier manner but then turned desperate after the deception was uncovered.

The complaint against Schmidt also references two co-operating witnesses in the company's engine development, who have agreed to speak with investigators in exchange for not being prosecuted.

The EPA found that the 2-litre cars emitted up to 40 times the legal limit for nitrogen oxide, which can cause human respiratory problems.