(Bloomberg) — The U.S. brought its first criminal charges related to allegations of diesel-emissions cheating at Fiat Chrysler Automobiles NV, extending a scandal that has roiled the global auto industry.
In an indictment unsealed Tuesday in Michigan, Emanuele Palma, a senior Fiat Chrysler engineer, was accused of conspiring with others at the company to mislead regulators and the public about the emission of pollutants from its diesel vehicles in a suspected scheme running from at least 2011 to 2017. The other employees weren’t named.
Palma led a team of engineers who developed and calibrated diesel engines for several years at the company’s U.S. headquarters in Auburn Hills, MI, prosecutors said. The charges against him include conspiracy to violate the Clean Air Act, wire fraud and making false statements. Palma was still working for the company when the indictment was issued on Sept. 18, it said.
The Italian-American automaker agreed to pay $800 million last January to settle lawsuits brought by states, car owners and the U.S. Department of Justice, which said its diesel-powered pickups and sport-utility vehicles violated clean-air rules. At the time, an attorney for the Justice Department called Fiat “a corporate bad actor” and said its violation of emissions laws was “a very serious offense.”
Despite the civil settlement, Fiat Chrysler could face other financial penalties related to the criminal investigation, depending on what it turns up. The indictment could be a sign of more to come, said Peter Henning, a former U.S. prosecutor who’s now a law professor at Wayne State University.
“It’s hard to think that one person could create a defeat device and not have it noticed by anyone else,” Henning said. “The whole thing with defeat devices is they’re there to sneak things past the EPA,” he said, “so it’s hard to think it would be just one person.”
The auto industry is still struggling with the consequences of Volkswagen AG’s diesel-cheating scandal, which cost the automaker more than $80 billion in fines and related costs and led to criminal charges against several executives in the U.S.
Earlier on Tuesday, prosecutors in Germany charged Volkswagen’s two top executives with market manipulation in the four-year-old diesel scandal, arguing they were too slow to inform investors about their diesel findings. Hours later, Mercedes-Benz owner Daimler AG was fined 870 million euros ($960 million) in a separate probe for rigging vehicles.
Fiat Chrysler said it was cooperating fully with authorities and pointed to earlier statements that there was no deliberate effort to deceive regulators.
“The settlements do not change the company’s position that it did not engage in any deliberate scheme to install defeat devices to cheat emissions tests,” the company said in January after settling with authorities. “Further, the consent decree and settlement agreements contain no finding or admission with regard to any alleged violations of vehicle emissions rules.”
Fiat Chrysler has been dogged by investigations into its diesel emissions since at least early 2017, when the Environmental Protection Agency said it found software in more than 100,000 Jeep Grand Cherokees and Ram 1500s that allowed the automaker to exceed pollution limits on the road.
Palma appeared at a hearing in Detroit on Tuesday and pleaded not guilty, though his lawyer told the judge he hadn’t yet had time to read the 39-page indictment. He was allowed to remain free pending trial after posting a $10,000 bond that restricts his travel to Michigan. His lawyer said Palma still works for Fiat Chrysler and has been meeting with federal agents investigating the allegations for more than three years.
“This is not the VW case,” Palma’s lawyer, Kenneth Mogill, said during the hearing. “All the operative facts are different.”
Mogill didn’t immediately respond to messages seeking comment after the hearing.
The indictment lays out several instances beginning in December 2011 in which Palma and others allegedly worked to mislead regulators about the emissions capabilities of 3.0-liter Fiat vehicles, including the Jeep Grand Cherokee and Ram 1500. This involved designing a control system that produced lower emissions during federal testing procedures yet higher emissions when the vehicles were on the road.
Prosecutors cite several email messages in which Palma and others discuss their strategy for getting the engine approved by regulators. In one message, an alleged conspirator says that someone might eventually go to jail. The person referenced in that email isn’t identified in the indictment.
They also discussed ways to refer to the software system used during the emissions testing in a way that wouldn’t bring scrutiny from regulators, according to the indictment. If asked, the system, known as T_Eng or t engine, was to be described as a program used to “warm-up” a cold engine as opposed to being used for “cycle recognition,” which is a red flag for regulators searching for devices used to rig testing procedures, prosecutors allege.
“I would like to have the strategy active but I don’t want to disclose the t engine,” Palma wrote in a June 2013 email, according to the indictment.
Palma and his conspirators later came up with another false explanation for the T-Eng software, according to the indictment, claiming that the rate of emissions controls was being ramped down during federal testing as the efficiency of a second controls system improved, and as the engine warmed up. Upon hearing this excuse, according to the indictment, Palma’s supervisor wrote: “Nice ! We will ’baptize’ t-engine as an efficiency factor of the SCR system.”
With assistance from Ryan Beene.