Largest-ever Fine
South Korea's Fair Trade Commission (FTC), the country's corporate watchdog, fined Volkswagen and Audi 37.3 billion won (US$32.07 million) for false advertising on vehicle emissions, claiming they meet the emission requirements and have better gas mileage.
The FTC announced on December 7 that it will fine Volkswagen Korea and its affiliate Audi 37.3 billion won (US$32.07 million) for fabricating gas emissions results on its diesel cars, and file complaints with prosecutors against five current or former Audi Volkswagen Korea and Volkswagen AG executives. This is the largest fine the FTC has ever levied for false advertising. Previously, the Ministry of Environment (MOE) ordered Volkswagen Korea to recall diesel-powered cars and fined it 14.1 billion won (US$12.12 million) and 4,000 consumers have lodged a compensation claim against it.
Upon investigation by the FTC, Volkswagen Korea and its headquarters in Germany had advertised that 120,000 units of its cars equipped with EA189 diesel engine met European emissions standards “the Euro 5” through newspapers, magazines, websites and brochures from December 2007 to November 2015. The nation’s Clean Air Conservation Act also has the same standards with the Euro 5 and the German automaker marked on the hood that the model guarantees the standards of the Clean Air Conservation Act. Volkswagen made false and exaggerated claims in the advertisements that its cars are high efficient and environmentally friendly vehicles that met the emission requirements and have 6 percent better gas mileage.
However, the MOE found out that the company manipulated the vehicles' emission reduction system to satisfy the pollution standards during qualification tests. With the function turned off, the Audi Volkswagen cars failed to show high fuel efficiency when meeting the emission standards. This was because when the cars normally operate the emission reduction system to satisfy the Euro 5 standards, its mileage goes down due to imperfect combustion, according to the MOE. The fact brought to light through the investigation by the U.S. authorities in September 2015 and the headquarters in Germany admitted it, causing criticism that it deceived consumers around the world.
The FTC applied a 1 percent fine on the 4.4 trillion won (US$3.78 billion) revenue the automaker made with false and exaggerated ads. In addition, it has decided to file complaints with prosecutors against five current or former executives, such as former Volkswagen Korea CEO Park Dong-hoon, current Audi Volkswagen Korea CEO Johannes Thammer and head of Audi’s overseas sales Terence Bryce Johnsson, early next year. The examination report written by the FTC Secretariat included the imposition of fine of 88 billion won (US$75.67 million) and filing complaints with prosecution against 10 executives, including ones in the PR division earlier, but they were down by half. This was largely due to the FTC accepted the Volkswagen’s claim at the full-house meeting that it advertised mostly on auto magazines or its websites rather than TV commercials or newspapers that can be viewed by general consumers and its employees in the PR division just followed the guidelines of the headquarters.
Meanwhile, Volkswagen in the U.S., which sold 500,000 diesel cars with fabricated gas emissions results, agreed to a US$14.7 billion (17.1 trillion won) settlement covering the U.S. government’s administrative measures and victims’ civil actions.