The high-profile case of the German automaker VW regarding violations of emissions regulations by manipulating emissions values in certification tests in the United States using sophisticated software, the sanctions against the company and the criminal prosecution of its executives has been a transcendent case worldwide, I found an interesting opportunity to illustrate the risks that can occur in a company, what I have been calling «Murphy’s law for executives and businessmen».

 

Company corruption mechanisms to evade regulation, software.

 

It is based on the public background of the VW case and particularly on a recent publication on Deutsche Welle’s youtube channel about the scandal that is considered to be the biggest industry fraud in German history, What really happened in the VW emissions scandal? see: DW Documentary.

 

In the background the case is based on a software as a mechanism and artifice created to evade an environmental regulation and the criminal implications of the alleged violation of the regulation, which is generically applicable throughout the world and particularly in Guatemala; We are going through the history to find common points to what happens in the latitude of Guatemala:

 

Responsibility :

 

The initial question is: who is responsible? the director? the managers? the engineers?

 

And then, what happens when no one accepts to take responsibility?

 

Those involved blame each other, the usual story: some say they wanted to give notice, others say they knew nothing about the manipulation of the rules.

 

According to each of those involved in the investigation, each step was approved by their superiors, but the superiors deny it. They were always convinced that they did nothing wrong, and when there were doubts about something strange it was up to the bosses to follow up, so they felt safe because someone else was the one who approved.

 

The bosses now say that they were not informed, that if they had known that something was cheating or defrauding they would have stopped it in its tracks and asked for explanations at the time.

 

In other words, testimony against testimony.

 

Are they responsible or are they victims?

 

No effective collaboration.

 

The only person who was imprisoned for the case, Mr. Oliver Schmidth, has already served his sentence; it was stated in the documentary -at minute 6:50- that his mistake was not having told the whole truth in a collaboration process he had with government officials, he omitted to say that the function of the software was manipulation. In other words, it was not an effective collaboration.

 

The beginning of the case dates back to 2005 when the parent company defined that it would be the first brand in the United States, and to do so it had to surpass its competitors in terms of compliance with environmental emission standards. To be the number one brand in terms of being «clean».

 

As the law is made, so is the trap:

 

Acceleration, speed, duration, is part of the test algorithm that the vehicle should pass, having known how the algorithm works the software was able to recognize when it was under test regime and thus manage the combustion so that it would pass the test in the presence of the auditors, – sacrificing the filter system during the test – however once out of the test the vehicle fails by far the emission standards.

 

Industry experts wondered, if the goal is to pass the test, what is the problem if the software succeeds? The developers never thought that by doing so they would be breaking the law, in a sort of «done the law, done the trap» that is used in Latin America, particularly in Guatemala.

 

They said «everyone does it so there’s nothing wrong with it.»

 

There was a feeling of running a red light, it was no big deal, it was not allowed but everyone does it, i.e. they did not recognize it as fraud, however the prosecution in gathering the evidence argues otherwise.

The word «transparency» resonates a lot, since some «informed» others about different aspects without actually expressing themselves transparently and with the special clarity that the case deserved, they said that they had implemented the software but did not explain with transparency the consequences that were generated for the environment and for an illicit enrichment of the company.

 

Due Diligence:

 

The engineers claim they were acting in the exercise of their profession, and some claim ignorance of the law, they say they did not read the emissions regulations, although some thought it was immoral they did not think it was illegal; their bosses claimed that had they known it was wrong they would have stopped it. In other words, a breach of professional duties by an important group within the company, which led them to the limits of the fraud for which they are being investigated by the public prosecutor’s office.

 

Senior management is judged with the standards of due diligence – should they have known there was wrongdoing? having known about it, did you do what was necessary to avoid it?

 

The CEO was blamed by the shareholders for not having done enough once the facts were known, although they claimed that he did not know it was illicit at the time the software was implemented.

 

Some engineers were dismissed, others are under investigation by the district attorney’s office in Germany.

 

Corruption mechanisms in Guatemala

 

A reflection of the case is that the inordinate business appetite for a competitive position, the demand for a standard to be exceeded and an authority that monitors it, the loss of the moral compass of the participants in the value chain by advocating custom , the lack of fulfillment of duties by managers, the evolution of society in terms of not tolerating «red lights», among other factors, can cause the perfect storm to enter into a maelstrom of criminal cases and with a huge reputational impact.

 

These factors exist in Latin America and particularly in Guatemala, that is to say, the risk of a corruption mechanism exists – not only because of manipulated software – and they are part of the risks of operation of the companies within the society, the scale does not necessarily have to be that of VW, in our countries they can be energy, telecommunications, environmental sanitation, sports businesses, that is to say, any of them. In other words, the VW case gives us a good parameter to know the factors that can happen no matter the scale and latitude.

 

What VW learned from the case and how it created a second chance to continue in the world market will be something interesting to know, especially because of the reputational impact, being a global company, surely nearby companies will also have access to a second chance to address situations of this type responsibly. We will dedicate another article to connect it also to what is happening in our tropics.