{"id":5115,"date":"2022-02-12T15:22:00","date_gmt":"2022-02-12T15:22:00","guid":{"rendered":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/?p=5115"},"modified":"2025-05-09T15:24:54","modified_gmt":"2025-05-09T15:24:54","slug":"crime-and-profits-the-story-of-the-most-profitable-punishment-in-american-history","status":"publish","type":"post","link":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/2022\/02\/12\/crime-and-profits-the-story-of-the-most-profitable-punishment-in-american-history\/","title":{"rendered":"Crime and Profits? The Story of the Most Profitable Punishment in American History"},"content":{"rendered":"\n

(<\/span>Source<\/span><\/a><\/em>)<\/span><\/p>\n\n\n\n

In 2015, Volkswagen <\/span>admitted<\/span><\/a> to engineering and rigging devices used on their diesel vehicles to skirt compliance with emissions testing and knowingly fouled the air by producing cars that were far out of compliance with emissions standards. Volkswagen\u2019s befouling plot released <\/span>46,000 tons<\/span><\/a> of nitrogen oxides, linked to an estimated 100+ deaths from the increased pollution. The repercussions for Volkswagen included pleading guilty to three criminal convictions resulting in a court-ordered criminal fine of <\/span>$2.8 billion<\/span><\/a>. The criminal fine was the <\/span>largest ever<\/span><\/a> imposed by the U.S. on an automaker. However, the <\/span>criminal charges<\/span><\/a> originated from the company\u2019s acts of deceit and conspiracy against the U.S.; the charges did not stem from enforcement of the Clean Air Act (CAA) against polluters who knowingly violate it. The Act <\/span>exempted<\/span><\/a> \u201cmobile source violators,\u201d i.e., carmakers, from criminal culpability for emissions violations. In addition, <\/span>thirteen<\/span><\/a> executives and employees of the company and its subsidiaries faced criminal charges, with several receiving prison <\/span>sentences<\/span><\/a>. <\/span><\/p>\n\n\n\n

In the end, the company has had to pay more than $34 billion in fines and settlements, including the costs for buybacks and modifications of their rigged diesel cars. However, arguably, the most significant sanction against Volkswagen has been the <\/span>consent decree<\/span><\/a> that they agreed to with the EPA and California. The <\/span>decree<\/span><\/a> committed Volkswagen to invest $2 billion in clean-emissions infrastructure. Precisely, Volkswagen had to create a nationwide charging network for electric vehicles (EV). At the time, the commitment to a charging network that could compete with Tesla\u2019s infrastructure seemed far-fetched. However, that has been proven wrong. Today, <\/span>Volkswagen<\/span><\/a> stands as the traditional carmaker best positioned to take on Tesla. And they have created the largest public <\/span>fast-charging network<\/span><\/a> in the U.S. through their subsidiary, Electrify America. The result of the consent decree has put Volkswagen in a position to <\/span>lead<\/span><\/a> the automotive industry for the 21st century. <\/span><\/p>\n\n\n\n

With the help of Electrify America, Volkswagen has turned its <\/span>lemons<\/span><\/a> into lemonade. Just one month after Volkswagen confessed to manufacturing the <\/span>largest conspiracy<\/span><\/a> the automotive industry has ever seen, company executives <\/span>met<\/span><\/a>, in October 2015, to decide the carmaker\u2019s future. The company\u2019s <\/span>executives<\/span><\/a> elected to adopt a new business model to help get through the impending storm as a result of the fallout. They <\/span>decided<\/span><\/a> to cease their na\u00efve attempts to make diesel more appealing. Instead, they were going to be a company of the future by committing to stop the production of internal combustion engines by <\/span>2026<\/span><\/a>. Fortunately, this correlated with the focus on Volkswagen\u2019s <\/span>consent decree<\/span><\/a> that followed the meeting, which they finalized over the years. The new direction required Volkswagen\u2019s commitment to spending over <\/span>$30 billion<\/span><\/a> on EV development by 2023. Volkswagen\u2019s early turn to EV puts the carmaker in the likely and valuable <\/span>position<\/span><\/a> of producing an EV for less than the costs of an internal combustion model by the year 2025.<\/span><\/p>\n\n\n\n

Analysts<\/span><\/a> suggest that Volkswagen will be competing against Tesla in 2025\u2013for reference, Tesla is the most <\/span>valuable<\/span><\/a> car company today. The analysts <\/span>expect<\/span><\/a> Volkswagen to profit $7 billion from their 2025 EV sales and have 3.5x greater profits than the next in line company, General Motors. Also, Volkswagen holds the promise of the Electrify America charging network. Electrify America is proving to be a successful punishment for the carmaker. The charging network has struck deals with several <\/span>established<\/span><\/a> carmakers to aid their EV innovations. Electrify America now has plans that stretch far beyond the consent decree, with the charging network also planning to <\/span>double<\/span><\/a> its already <\/span>largest fast-charging<\/span><\/a> public network in the U.S. Also, the charging network has built an infrastructure for EVs in <\/span>Canada<\/span><\/a>, with more expansion coming there as well. The charging network\u2019s future shows so much promise that Volkswagen is looking for a co-investor for <\/span>one billion dollars<\/span><\/a>. An investment of this size would cover half of the consent decree\u2019s required commitment for an EV charging network. Ultimately, Volkswagen has turned the company\u2019s outlook around. Volkswagen\u2019s focus on EVs positions the company to be not only one of the greenest automakers but also one of the biggest profit-makers of tomorrow. Yet, Volkswagen\u2019s promising future is not <\/span>surprising<\/span><\/a>.<\/span><\/p>\n\n\n\n

Tomorrow\u2019s green technology shows the promise of reaching a global market size of <\/span>$75 billion<\/span><\/a> by 2030. Green technology and sustainability will <\/span>boost profits<\/span><\/a> for those companies which endorse the non-conventional technologies of the future. The prime example is Tesla which has become the most <\/span>valuable<\/span><\/a> car manufacturer in under <\/span>20 years<\/span><\/a> of operation. Tesla has <\/span>diverted<\/span><\/a> vast volumes of customers away from traditional car manufacturers through selling desirable EVs of the future. However, the incredibly difficult part about this is the considerable <\/span>start-up costs<\/span><\/a> associated with mass manufacturing efficient battery cells with favorable profit margins. EV innovations require traditional carmakers to give up profits during the <\/span>transition period<\/span><\/a> for what has been an uncertain outlook on the earnings of EVs. Look no further than to Tesla for an example of the <\/span>growing pains<\/span><\/a> that come with creating products for a sustainable future. Tesla didn\u2019t turn their first <\/span>profitable year<\/span><\/a> until 2020.<\/span><\/p>\n\n\n\n

Nevertheless, as Volkswagen now demonstrates, if a company is \u201c<\/span>incentivized<\/span><\/a>\u201d to adopt sustainable products or green policies, it will be in a <\/span>better<\/span><\/a> economic position for the future because of those additions. The traditional companies of the past, which rely on fossil fuels, have dug their heels into the <\/span>sand<\/span><\/a>. And Volkswagen exemplifies how the privatization of America incentivizes <\/span>fraudulent behavior<\/span><\/a> and corner-cutting so big companies can stay entrenched in their ways and retain profits. The only time a traditional fossil fuel company will switch its model is when the market forces reach a<\/span> <\/span>threshold<\/span><\/a> where manufacturing the new product will result in a net gain. But companies also may undergo change when the government incentivizes the change through <\/span>policy<\/span><\/a>. And unfortunately, we do not have the climatological <\/span>allowance<\/span><\/a> for such a long time to pass until manufacturing processes incentivize the big companies. Therefore, the <\/span>best option<\/span><\/a> moving forward is if the government moves away from individual adjudications of infractions and instead institutes market-wide subsidies for industries to adopt sustainable practices now. This <\/span>approach<\/span><\/a> will yield not only the cleaner earth that we desperately need, but it will also bring these companies into a world of new profits that they will be glad they didn\u2019t wait any longer.  <\/span><\/p>\n\n\n\n

Yet, the reality is that the preconceived opinions about the costs of going green have taken hold and led businesses and even <\/span>governments<\/span><\/a> to resist the transition. Public policy can play a crucial role in green initiatives adopted domestically and abroad. However, the critical role of the government and its policy regulating the private industry is one that our <\/span>country<\/span><\/a> has not seen <\/span>before<\/span><\/a>. Green policy must <\/span>employ<\/span><\/a> distinct and innovative ways of furthering the economy. Specifically, green policy initiatives will have to <\/span>support<\/span><\/a> the development of new technologies that will lay the foundation for industries generally and the benefit of all. And policy regulating demand through quota setting and <\/span>feed-in tariffs<\/span><\/a> will help stabilize the big questions surrounding the supply and demand issue. Lastly, <\/span>government<\/span><\/a> oversight of sustainable operations and infrastructure will be vital to achieving development goals and organizational problems that arise from the new economy. <\/span><\/p>\n\n\n\n

The recently passed Infrastructure Investment and Jobs <\/span>Act<\/span><\/a> adopts policies like these. The <\/span>Act<\/span><\/a> will invest in the production of renewable energies and EVs. Another provision of the <\/span>Act<\/span><\/a> includes the $7.5 billion for the government\u2019s adoption of zero-emission transit buses supported by government spending of $7.5 billion towards a national charging network. The government intends to focus the investments into installing EV infrastructure in <\/span>low-income<\/span><\/a> neighborhoods, which private industry might otherwise overlook. Low-income and disadvantaged neighborhoods could have quick charging subsidized for them with the help of this Act and, even in part, <\/span>Volkswagen<\/span><\/a>. Otherwise, without some support, these communities will be <\/span>disparately<\/span><\/a> affected. Electric charging could cost those communities <\/span>3x more<\/span><\/a> if they use public charging at retail price versus charging rates at home. An additional obstacle to consider is the large <\/span>up-front costs<\/span><\/a> that accompany the installation of a charger at an EV user\u2019s home. Pair this with the fact that many of the <\/span>poorest<\/span><\/a> Americans rely on renting their homes, making installing a charger out of the question. And these are just the obstacles to charging an EV. The starting costs of an EV are, at best, around <\/span>$30,000<\/span><\/a>. But regardless, many people don\u2019t need a new car, especially not a brand new one with large costs accompanying both those who buy or lease. <\/span><\/p>\n\n\n\n

The answer to these difficulties lies in proactive policy-making. Volkswagen has poured <\/span>millions<\/span><\/a> of dollars into creating EV-based car share programs located in low-income neighborhoods. Using these Electrify America <\/span>car shares<\/span><\/a> range from $9 to $15 an hour. Clearly, Volkswagen has not been forced to surrender the ability to make profits in these equitable programs that they have installed to comply with the consent decree. But the government should limit its profit-focus in equitable investment plans where Volkswagen is supposed to provide reliable and clean transportation to those who need it most. As a result of the lack of success from the investment in the low-income neighborhoods of Sacramento, Volkswagen is now spending around <\/span>$100 million<\/span><\/a> in affluent neighborhoods of Southern California versus only $2 million going to the communities in need. <\/span>Corporate behavior<\/span><\/a> like this comes from a lack of <\/span>independent<\/span><\/a> and government oversight. <\/span>Proactive<\/span><\/a> formal channels of regulation and policy could help counteract the issues that Volkswagen faces in not wanting to give up profits. Government <\/span>coordination<\/span><\/a> can make companies\u2019 investment in marginal communities a worthy investment through industry-wide coordination, leading to the broad adoption of EVs. Planned adoption of EVs is needed to ensure <\/span>equitable<\/span><\/a> distributions of this foreign way of life. Calculated allocations <\/span>equally<\/span><\/a> amongst the country will limit inequalities some communities face and even make the adoption of EVs <\/span>practical<\/span><\/a> for the middle-class by making EVs practical and easy to use.  <\/span><\/p>\n\n\n\n

Volkswagen is no different from its <\/span>peers<\/span><\/a> either. Companies are most concerned with the bottom line, and they will take their time adopting a new practice that cuts into their <\/span>profits<\/span><\/a>. The key is creating effective policy and capable oversight mechanisms to help traditional companies do the right thing. Ultimately, if the <\/span>Infrastructure Act<\/span><\/a> can truly accomplish what it has set out to, our country will be on the right track. But otherwise, private industry will continue their slow transition to green practices, refuse to give up any more profits than they have to, and continue to <\/span>cheat<\/span><\/a> the system if significant changes don\u2019t originate from the top. Even though the promise of green, sustainable technologies shows a future of profits, traditional companies like <\/span>Toyota<\/span><\/a> continue to lobby for a slow-down to the transition to EVs. Government pushes to spark the change through investment, subsidies, and oversight will counteract the foot-dragging of big industry. The harm of a failure to act will result in green, private companies only proliferating the <\/span>wealthy<\/span><\/a> market base and affluent neighborhoods, which can afford the expensive new technology. If not corrected, this will further solidify the economic inequalities that already affect low-income and working-class Americans, which make up the <\/span>majority<\/span><\/a> of our country. If these Americans cannot transition to sustainable energies over the next <\/span>30 years<\/span><\/a>, then the profits of Volkswagen and the companies like it will have been for nothing. <\/span><\/p>\n\n\n\n

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About the Author: <\/strong>Cody Colton is a 2L at Cornell Law School. He graduated from the University of California Irvine, where he majored in political science with an emphasis on legal studies. Cody is interested in securities litigation and white-collar crime. He is an associate for Cornell Law School\u2019s Journal of Public Policy and its online publication, The Issue Spotter.<\/p>\n<\/div><\/div>\n\n\n\n

<\/p>\n

Suggested Citation: Cody Colton, <\/span>Crime and Profits? The Story of the Most Profitable Punishment in American History<\/span><\/i>, Cornell J.L. & Pub. Pol\u2019y, The Issue Spotter, (<\/span>February 15, 2022<\/span>), https:\/\/live-journal-of-law-and-public-policy.pantheonsite.io\/crime-and-profits-the-story-of-the-most-profitable-punishment-in-american-history\/. (opens in a new tab)<\/span><\/a><\/span><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

(Source) In 2015, Volkswagen admitted to engineering and rigging devices used on their diesel vehicles to skirt compliance with emissions testing and knowingly fouled the air by producing cars that were far out of compliance with emissions standards. Volkswagen\u2019s befouling plot released 46,000 tons of nitrogen oxides, linked to an estimated 100+ deaths from the…<\/p>\n","protected":false},"author":1,"featured_media":3894,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5115","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/5115","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/comments?post=5115"}],"version-history":[{"count":1,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/5115\/revisions"}],"predecessor-version":[{"id":5116,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/posts\/5115\/revisions\/5116"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media\/3894"}],"wp:attachment":[{"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/media?parent=5115"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/categories?post=5115"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/publications.lawschool.cornell.edu\/jlpp\/wp-json\/wp\/v2\/tags?post=5115"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}