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VW manager arrested despite cooperation in probe

USA TODAY logo USA TODAY 3/5/2017 Brent Snavely
Oliver Schmidt, VW General Manager for the Engineering and Environmental Office, poses for a portrait in a 2015 Volkswagen e-Golf in Auburn Hills in November 2013.© Mandi Wright, Detroit Free Press Oliver Schmidt, VW General Manager for the Engineering and Environmental Office, poses for a portrait in a 2015 Volkswagen e-Golf in Auburn Hills in November 2013.

Oliver Schmidt, who served as Volkswagen general manager for three years in Auburn Hills, thought he could avoid being swept up in one of the largest automotive criminal investigations in U.S. history by cooperating with the FBI and the U.S. Department of Justice.

He was wrong.

Schmidt was arrested anyway in Miami on Jan. 7 while on Christmas vacation with his wife in Miami. This was despite what his lawyers say were hours spent cooperating with authorities last year. 

The arrest surprised many who wondered why Schmidt, a German national, risked traveling to the U.S. He'd left his U.S. job in 2015. 

Court documents filed recently in U.S. District Court in Detroit reveal that Schmidt, 48, thought his extensive cooperation with investigators made him a low priority for arrest.

Schmidt, who worked in the U.S. from 2012 to early 2015, contacted the FBI and willingly participated in an interview in London in November 2015 "without any preparation or legal counsel," his lawyers say in the court documents.

He met again with FBI agents in Detroit the following month and participated in at least six interviews connected to Volkswagen's internal investigations, including one in November that lasted 12 hours.

The government says Schmidt, who pleaded not guilty last month, is a central figure among a group of executives who spent more than a decade developing software that was designed to defeat the government's laboratory testing of diesel emissions and lied on a federal certification process.

The U.S. Environmental Protection Agency charged Volkswagen in September 2015 with creating software that was designed to defeat those tests for more than a half-million vehicles that actually emit nitrogen oxide at levels far above the legal limit.

Schmidt's role at Volkswagen was to be the automaker's liaison with the EPA and the California Air Resources Board. For several years, Schmidt shepherded Volkswagen's vehicles through a diesel emission certification process and said the company's vehicles met regulatory standards. 

Schmidt, who is being detained at the federal correctional institution near Milan, Mich., while he awaits trial, hopes to get out on bond, forfeiting his rights to property, cash and other assets valued at more than $1.34 million for the right to be free until his trial, scheduled for April. His attorneys will get a chance to make that argument March 16 before U.S. Judge Sean Cox in Detroit.

George Donnini of the Butzel Long law firm, who is among Schmidt's local attorneys, declined to comment on the case. 

In court records filed by his attorneys, Schmidt is portrayed as someone who is not a flight risk. He owns seven properties in the Miami area, got married in Florida in 2010 in a Volkswagen dealership and has spent the Christmas holidays in the U.S. every year since 2008. He crossed the border four times in 13 months knowing that he was under investigation, records filed by his attorneys say.

"A person who came to this country, knowing he was under investigation, knowing full well that he could be arrested and who has friends and property here should not be detained on the grounds that he is a German national," his attorney, David Massey of Richards Kibbe and Orbe of New York, argued in January during a detention hearing in Miami. 

Schmidt's attorneys also paint a picture of a man who didn't develop the software used to defeat the emissions tests, who advocated for transparency with regulators and "relayed information he believed was accurate." 

"He had nothing to do with the design of diesel engines or the engine control unit software at issue in this case," his lawyers argue.

The government disputes the characterizations and says Schmidt is a flight risk.

"The very crime that Mr. Schmidt is alleged to have committed, and in particular his role, is lying to the U.S. government," Benjamin Singer, an attorney with the U.S. Justice Department's fraud section, said during the hearing. "When Mr. Schmidt did meet with us, he purported to be cooperative, but what he did is he exculpated himself and attempted to deceive the government."

The investigation, along with its cover-up, has forced Volkswagen to agree to civil settlements worth about $17 billion for U.S. consumers and dealers who own the automaker's diesel vehicles and an additional $4.3 billion to settle criminal charges. Volkswagen, as a corporate entity, is scheduled to appear in court to formally plead guilty, as a company, on Friday.

Volkswagen's U.S. diesel certifications first came into question when researchers from West Virginia University conducted emissions tests unlike the government's tests and discovered that the automaker's diesel engines were actually spewing nitrogen oxide at levels that far exceed U.S. regulations.

While Schmidt, who is still a Volkswagen employee, did not play a role in the creation of the software used to cheat on emissions tests, he did participate in the cover-up, the government says. 

In its indictment, the government said Schmidt told officials from the California Air Resources Board in August 2015 in Traverse City that the emissions tests were flawed because of "abnormalities" or "irregularities" without revealing that Volkswagen had intentionally designed software "to detect, evade and defeat U.S. emissions testing." 

Schmidt faces a 10-count indictment that includes violations of the Clean Air Act and wire fraud. Collectively, those charges add up to a possible sentence of 149 years in prison, but judges rarely stack charges consecutively.

He is one of six Volkswagen employees indicted in January. An engineer, James Robert Liang, pleaded guilty to one count of conspiracy to defraud the U.S. last fall.

Contact Brent Snavely: 313-222-6512 or bsnavely@freepress.com. Follow him on Twitter @BrentSnavely

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