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Legal Report April 2017


Fraud. Volkswagen will plead guilty to three U.S. criminal felony counts and pay a $2.8 billion penalty to resolve a U.S. federal criminal investigation into its cheating on emissions tests. 

The plea is the result of Volkswagen’s long-running scheme to sell roughly 590,000 diesel vehicles in the United States by using a device designed to cheat emissions tests, which are mandated by the U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB).

Volkswagen, according to the U.S. Department of Justice (DOJ), participated in a conspiracy to defraud the United States and its U.S. customers and to violate the Clean Air Act by misleading regulators and customers about whether its diesel vehicles complied with U.S. emissions standards. 

Volkswagen also pleaded guilty to obstruction of justice for destroying documents related to the scheme and to a separate crime of importing vehicles that did not comply with U.S. emissions limits into the country.

“Under the terms of the plea agreement, which must be accepted by the court, Volkswagen will plead guilty to all these crimes, will be on probation for three years, will be under an independent corporate compliance monitor who will oversee the company for at least three years, and agrees to fully cooperate in the Justice Department’s ongoing investigation and prosecution of individuals responsible for these crimes,” the DOJ said in a statement.

A federal grand jury also indicted six former Volkswagen executives for their roles in the cheating scheme: Heinz-Jakob Neusser, former head of development; Jens Hadler, former head of engine development; Richard Dorenkamp, former head of engine development after-treatment department; Bernd Gottweis, former supervisor responsible for quality management and product safety; Oliver Schmidt, former general manager in charge of the environment and engineering office; and Jürgen Peter, part of the quality management and product safety group.

Volkswagen engineers began designing a new diesel engine in 2006 to meet U.S. emissions standards that would go into effect in 2007. The engine was marketed as a “clean diesel” engine, but Volkswagen soon realized that it could not design an engine to meet the stricter standards and attract sufficient customer demand in the United States. So, Volkswagen decided to use a software function to cheat U.S. emissions tests.

“Volkswagen engineers working under Dorenkamp and Hadler designed and implemented software to recognize whether a vehicle was undergoing standard U.S. emissions testing on a dynamometer (device for measuring force) or it was being driven on the road under normal driving conditions,” the DOJ said. “If the software detected that the vehicle was not being tested, it operated in a different mode, in which the vehicle’s emissions control systems were reduced substantially, causing the vehicle to emit [mono-nitrogen oxides] up to 40 times higher than U.S. standards.”

This new engine model was installed in Volkswagen vehicles beginning in 2009. The vehicles were then imported to the United States. To legally sell the vehicles in the United States, the coconspirators allegedly lied to the EPA about the existence of the test-cheating software.

In 2014, West Virginia University’s Center for Alternative Fuels, Engines, and Emissions published a study commissioned by the International Council on Clean Transportation. The study found “substantial discrepancies” for Volkswagen vehicles when tested on the road compared to when they were undergoing EPA and other tests on dynamometers. 

Instead of telling the truth about the testing, however, Volkswagen employees—including Neusser, Gottweis, Schmidt, and Peter—attempted to disclose as little information as possible to U.S. regulators, customers, and the public. 

U.S. regulators followed up with Volkswagen to determine why the discrepancies in testing were occurring. But in “implementing their strategy of disclosing as little as possible, Neusser, Gottweis, Schmidt, Peter, and their co-conspirators” provided regulators with “testing results, data, presentations, and statements in an attempt to make it appear that there were innocent mechanical and technological problems to blame, while secretly knowing that the primary reason for the discrepancy was their cheating software that was installed in every Volkswagen diesel vehicle sold in the United States,” the DOJ explained.

Volkswagen used this strategy with regulators for more than 18 months, successfully obstructing attempts to uncover the truth. 

In a separate civil case, Volkswagen will pay $1.5 billion for violating EPA regulations and for customs fraud. The agreement with the EPA in the civil case also requires injunctive relief to prevent future violations. It also resolves alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act. (U.S. v. Volkswagen, U.S. District Court for the Eastern District of Michigan, No. 16-CR-20394, 2017)

Surveillance. European Union (EU) member states may not impose general obligations on electronic communications services to retain data, the EU Court of Justice ruled. 

The decision was a blow to the recently enacted U.K. Investigatory Powers Law, which allows the U.K. Home Department to require public telecommunications operators to retain all data related to communications for up to 12 months. The U.K. law was enacted in 2016 to replace the expiring Data Retention and Investigatory Powers Act (DRIPA) that was passed in 2014.

U.K. Member of Parliament Tom Watson and Brexit Secretary David Davis filed suit against DRIPA in 2014, and the U.K. High Court found parts of it to be unlawful and incompatible with EU law.

The U.K. government appealed the ruling, which brought the case to the EU Court of Justice. It found that EU law precludes the “general and indiscriminate” retention of electronic communications traffic data and location data.

“The fact that the data is retained without users of electronic commu­nications services being informed of the fact is likely to cause the persons concerned to feel that their private lives are the subject of constant surveillance,” the court wrote. “Consequently, only the objective of fighting serious crime is capable of justifying such interference.”

The court ruled that EU member states can—as a preventive measure—create provisions for targeted retention of electronic communications data to fight serious crime, “provided that such retention is, with respect to the categories of data to be retained, the means of communication affected, the persons concerned, and the chosen duration of retention, limited to what is strictly necessary.”

The court also explained that access to the data by national authorities must be subject to conditions, including being reviewed by an independent autho­rity and being retained within the European Union.

The U.K. law “exceeds the limits of what is strictly necessary and cannot be considered to be justified within a democratic society,” the court added. The U.K. government plans to appeal the ruling to the EU Court of Appeals because it has not completed Brexit and is still subject to EU law. (Secretary of State for the Home Department v. Tom Watson and Others, Court of Justice of the European Union, No. C-698/15, 2016)​


Email. The U.S. House of Representatives passed legislation that would update privacy protections for electronic communications stored by third-party service providers.

The Email Privacy Act (H.R. 387) would update the Electronic Communications Privacy Act (ECPA) to require all U.S. government agencies to obtain a warrant to search Americans’ online communications, regardless of when the email was written. The ECPA currently allows the U.S. government to search any email that is more than 180 days old that’s stored on a third-party server, such as a Google or Yahoo server, without a warrant.

The bill was introduced in the 114th U.S. Congress and passed the House of Representatives unanimously, but stalled in the Senate.

“As a result of Congress’s failure to keep pace with technological developments, every American is at risk of having their emails warrantlessly searched by government agencies,” said bill cosponsor Representative Kevin Yoder (R-KS) in a statement. “It’s simple, in 2017 if the federal government wants to access Americans’ digital content, it must get a warrant.”

The bill has nine bipartisan cosponsors and has been sent to the Senate for consideration.​


Privacy. U.S. agencies published a final rule that requires contract employees who handle personally identifiable information (PII) or work with a system of records to complete privacy training. 

The rule was crafted by the U.S. Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration. It requires contract employees who handle PII to receive initial and annual privacy training on working with PII and the contractor’s incident response plan. 

The privacy training must address the safeguarding of PII or a system of records, and should be “role-based, provide foundational as well as more advanced levels of training, and have measures in place to test the knowledge level of users,” according to the rule.

Contractors are also required to maintain documentation on employees’ privacy training and provide it to the agencies upon request.

The rule applies to contractors and subcontractors at or below the simplified acquisition threshold of approximately $150,000 and to contracts and subcontracts for commercial items.  ​


​Wildlife Trafficking. China will ban all ivory commerce by the end of 2017 following years of growing pressure to shut down the world’s largest ivory market.

The shutdown of the market will occur in phases, according to China’s State Council, and the first step was the closure of legal ivory processing factories and businesses by March 31. The Ministry of Culture will now transition ivory to museums and other cultural institutions, and assist ivory workers to find related vocations.

Additionally, China will strengthen law enforcement supervision, publicity, and education to crack down on illegal processing of ivory within the nation.



Brazilian global construction conglomerate Odebrecht S.A. and petrochemical company Braskem pleaded guilty and agreed to pay penalties of at least $3.5 billion to resolve U.S., Brazilian, and Swiss charges of bribery. The two companies used a business unit, dubbed a “Department of Bribery” by the U.S. Department of Justice (DOJ), to systematically pay hundreds of millions of dollars to corrupt government officials in countries around the world to win business. “The criminal conduct was directed by the highest levels of [Odebrecht], with the bribes paid through a complex network of shell companies, off-book transactions, and off-shore bank accounts,” according to the DOJ. (U.S. v. Odebrecht S.A., U.S. District Court for the Eastern District of New York, No. 16-643 (RJD), 2017; U.S. v. Braskem, U.S. District Court for the Eastern District of New York, No. 16-644 (RJD), 2017) 


A U.S. appeals court found that California’s 10-day waiting period to purchase a firearm is a reasonable safety precaution for all individuals seeking to purchase a gun, regardless of whether they have purchased a gun in the state before. In a lawsuit challenging California’s law that created the waiting period, the appeals court reversed a lower court’s decision, finding that the law does not violate plaintiffs’ Second Amendment rights under the U.S. Constitution because the waiting period is a “reasonable precaution for the purchase of a second or third weapon, as well as for a first purchase.” (Silvester v. Harris, U.S. Court of Appeals for the Ninth Circuit, No. 14-16840, 2016)


Employees on rest breaks must be relieved of all of their duties, the California Supreme Court ruled, finding that a security firm violated state law by requiring security guards to carry phones and radios and remain on call during rest breaks. “California law requires employers to relieve their employees of all work-related duties and employer control during 10-minute rest periods,” the court wrote. The suit was brought by security guards employed by ABM Security Services, Inc. (Augustus v. ABM Security Services, Inc., Supreme Court of California, No. S224853, 2016)