After Volkswagen, Fiat Chrysler Automobiles Caught in Emissions Scandal

After Volkswagen, Fiat Chrysler Automobiles Caught in Emissions Scandal

The US Justice Department charged a Fiat Chrysler senior manager of criminal conspiracy to mislead regulators, customers about emissions in diesel-powered vehicles.

A grand jury indicted a senior manager at Fiat Chrysler Automobiles NV (FCA) on charges that he lied to regulators about diesel emissions, alleging the deception continued even after a scandal over cheating on government environmental tests had engulfed rival Volkswagen AG. The indictment of the Fiat Chrysler manager unsealed on September 24, said others "known and unknown" to the grand jury also criminally conspired to mislead regulators and customers about emissions in diesel-powered vehicles, a scheme they described in emails seized upon by the US Justice Department officials.

The charges came on the same day that prosecutors in Germany indicted Volkswagen's current and former CEOs and the company's board chairman on charges they failed to inform investors of that company's diesel-emissions fraud after they learned of it in 2015. Also on September 24, German automaker Daimler AG agreed to pay 870 million euros in fines connected to a separate investigation of diesel emissions cheating. Emanuele Palma, a senior manager of diesel drivability and emissions at Fiat Chrysler, faces charges of conspiracy, fraud, violating federal environmental law and making false statements stemming from work on Fiat Chrysler's emissions system in US vehicles with diesel engines, according to the indictment.

Palma, a 40-year-old Italian citizen, was arrested by the FBI on the morning of September 24 at his home in Bloomfield Hills, Michigan. In the afternoon, he appeared before a federal judge in Detroit in shackles, a hooded sweatshirt and sweatpants. Magistrate Judge Elizabeth Stafford released him on a $10,000 unsecured bond and ordered him to surrender his passport. Prosecutors argued Palma represented a "significant flight risk" and sought unsuccessfully to have him placed under GPS monitoring. Palma's lawyer, Kenneth Mogill, argued his client has family in the Detroit area and is cooperating with prosecutors.

The indictment describes what it refers to as a "scheme" to use sophisticated software tricks to deceive regulators about the emissions performance of diesel engines offered in Ram pickup trucks and Jeep sport-utility vehicles. Palma led a team of engineers who developed diesel engines and calibrated them with software allowing the vehicles to pollute less when undergoing government testing and more when driven on roads, US officials said.

After the disclosure of Volkswagen's emissions fraud in September 2015, the indictment states that the US Environmental Protection Agency asked Fiat Chrysler for more testing of its diesel vehicles. In November 2015, the EPA warned Fiat Chrysler that it suspected some of its vehicles were using secret software to defeat emissions tests. The indictment charges that months later, in a June 2016 meeting, Palma "personally provided false and misleading representations" to regulators. Before 2016, Palma worked for VM Motori SpA, a diesel engine manufacturer that was 50 per cent owned by Fiat Chrysler until 2013, when it purchased the remainder of the company.

Fiat Chrysler, which has previously denied purposefully attempting to evade emissions requirements, said in a statement it would "continue to fully cooperate with the authorities, as we have throughout this issue" and declined to comment further. "The indictment, in this case, should signal to corporations and individuals working for them that there are significant consequences for attempting to bypass US emissions tests and defraud the American people,” said Special Agent in Charge Steven M D'Antuono of the FBI’s Detroit Field Office in a statement.

Fiat Chrysler's US-listed shares lost 3 per cent to 13 US Dollars (USD) on September 24. Their Milan-listed shared closed down 2 per cent.

Settled Civil Claims

The developments in the US criminal probe signal additional scrutiny of Fiat Chrysler's environmental practices on the horizon, despite the automaker's January settlement of civil claims stemming from the alleged emissions violations. Fiat Chrysler agreed to pay about 800 million USD to resolve civil claims from the Justice Department, state officials and customers alleging the company installed illegal software allowing more than 100,000 diesel-powered vehicles to dupe government emissions tests and then pollute beyond legal limits on the road.

The settlement did not resolve any potential criminal liability, the Justice Department said when unveiling the agreement. Fiat Chrysler at the time said the settlement did not change the company's "position that it did not engage in any deliberate scheme to install defeat devices to cheat emissions tests." Defeat devices are hardware or software designed to stymie emissions controls, according to regulators. The renewed focus from US prosecutors on Fiat Chrysler's alleged emissions violations follows cases against Volkswagen and a number of that automaker's current and former executives overuse of illegal software to fool government diesel-emissions tests and mislead regulators and consumers.

Volkswagen and some of its executives pleaded guilty to criminal charges in the scandal, and the German automaker paid billions of dollars in penalties. German prosecutor charged former Volkswagen CEO Martin Winterkorn and other company executives in the scandal. A Winterkorn lawyer said the former CEO rejected the claims. He was previously charged in the United States.

The indictment says Palma and unnamed co-conspirators "purposefully calibrated the emissions control system" in Fiat Chrysler vehicles to produce lower emissions under federal test cycles and release higher amounts of nitrogen oxides during real-world driving conditions. They concealed those moves from US environmental regulators, the indictment alleged. The alleged fraud allowed Palma and the unnamed co-conspirators to obtain a favourable fuel economy rating that made Fiat Chrysler vehicles more attractive to potential customers, the indictment said. Prosecutors alleged the conduct resulted in deceptive claims to customers that the vehicles featured "clean EcoDiesel engines," the indictment said.

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