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From Wondry, I'm Lindsay Graham and this is American Scan. Today we wrap up our series on the Volkswagen Emission Scanner. Between 2009 and 2015, the auto giant touted its diesel models as a cleaner alternative to gasoline. Using that claim, they sold nearly 11 million cars worldwide, including about half a million in the United States. But those claims were based on a lie. A lie that once uncovered, Volkswagen would scramble to cover up. After more than a year of legal wrangling, the company would pay billions of dollars in settlements, and pay out 7 billion more to buy back over 350,000 cars already on American roads. Today I'm speaking with Cynthia Giles, formerly with the Environmental Protection Agency. Giles was head of the enforcement office during the Obama administration, and sat face to face with the company's CEO to negotiate a settlement. 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Learn more and find a local retailer at proven winners color choice dot com slash one D that's proven winners color choice dot com slash one D. If you're into true crime, the generation Y podcast is essential listening. We started this podcast over 10 years ago to dissect some of the craziest and most notable murders, crimes, and conspiracy theories together, and we'd love for you to join us. Follow the generation Y podcast on Amazon music or wherever you listen to podcasts. Cynthia Giles welcome to American scandal. Thanks for having me. So I want to start our conversation with the timeline of this scandal. In November 2006, Volkswagen executives decided to install defeat devices in their diesel models so they could compete in the US. It was eight years later in the spring of 2014 that the California Air Resources Board opened an inquiry into Volkswagen after a study out of West Virginia. And a year later, August 2015 that it winds up on your desk at the EPA. Was that when you first learned about this scandal and and when you did learn about it, what about the sheer scope of this cheat? It seems enormous. What was your reaction? Well, I was stunned. I've been in environmental enforcement my entire career and I've seen a lot of bad behavior, but this was really in a category all it's on. We consider this to be a direct assault on the regulations that EPA has to protect people from pollution from cars and a lot of us were furious. So it was not became immediately clear that not only was VW cheating on the diesel emissions, but they've been lying to our face about it over the prior about 18 months. EPA and car have been doing an investigation and they had been giving us the run around and telling us things they knew weren't true. So it seems when you first heard about it, it seemed like it couldn't be worse, but unfortunately turns out that it was. Well, let's let's put the scale of this in context. You mentioned that you've seen bad behavior before. What were previous scandals like? Well, it's not unusual for us to find companies that are engaging in reckless behavior or cutting quarters and ending up causing pollution that was going to harm people. But in the case of VW, what became immediately clear was that they had done this deliberately knowingly. They were going to put people in harm's way knowing that they were doing that. And that is really shocking behavior. Let's talk about how this scandal ended up in the lapse of American regulators. So the International Council on Clean Transportation in Europe tested several Volkswagen's and found gaps between their certified emissions and their real world emissions. They then gave a $70,000 grant to the University of West Virginia to test models in the US. What do you think compelled the Europeans to fund American studies of these vehicles? Well, the origin of this study was the fact that European diesel cars were not complying with the European standards. And a nonprofit in Europe wanted to prove that in the United States, the cars do comply and use that information to put pressure on the automakers who produce vehicles for the European market. So that's the origin of the West Virginia study. They tested diesel vehicles from a couple automakers. And one of those was VW. When they were doing the study, they expected to find out the vehicles comply. And they were surprised that there were higher emissions from the VW vehicles. And at that point, the West Virginia researchers called DPA and they called CARB. And that sparked an investigation by both EPA and CARB over the following year. So the idea of the origin of the study was to show that in the United States, regulators hold automakers to account on emissions. It didn't turn out they expected. But I think it ended up proving their point more powerfully than they originally thought. But regulators in America did get involved. And that's this is when you get involved as well. You were the head of the EPA's enforcement office for the Obama administration. That's correct. And it was your job to determine how Volkswagen was going to make things right. You had, of course, a lot to consider and a lot to uncover. What was this process in the beginning? Well, our immediate priority was dealing with the pollution. Getting the violating CARS off the road and stopping the additional pollution that those CARS were emitting. We also wanted to make sure to force VW to make up for all the illegal pollution that had already occurred. And find a way to redress the harm to the market for clean CARS that VW caused by unbelievably marketing these polluting vehicles as green. So it was very clear from the outset. Very quickly figured out that the faster we moved, the better result we were going to get. So that was our immediate priority was the pollution in parallel. Of course, we also ramped up the criminal investigation. Well, let's talk about the remediation efforts. Volkswagen has hundreds of thousands of these CARS on the road in America. It seems like pulling them off in a mass recall would be just an extraordinary event. Were you prepared to go that far that fast? From the outset, we were determined that VW was going to give the consumers the option to buy these CARS back. Either that or give them an opportunity to have them fixed if we could figure out a way to fix them that was going to be effective. So yes, we knew that at the top of the pile of our priorities was getting those polluting vehicles off the road. Who were the people involved in these negotiations? Well, in the civil case, the negotiations started with a small meeting between the EPA administrator, Gina McCarthy, and the then CEO of VW Mateus Mueller. There was a small number of us in her office. That was our first face to face interaction with the leadership of VW. At that meeting, EPA laid out a three part structure to solve the pollution issues, which ended up being the basis for the agreement that we ultimately reached. So I was very small number of folks in the room for that initial meeting, but obviously in a case this complicated, we quickly expanded to a quite large team of people, which was needed to move from that January initial structure to the 225 page technically complicated consent decree that we signed in June. So the people were for me, I was the head of the team for EPA, Mary Nichols headed the team from the California Air Resources Board and on his car. John Cruden led the team from DOJ. DOJ was involved because of course DOJ was representing EPA in court. And then of course there was the VW team, which was headed for them by a member of their board and their general counsel of the parent company. There was a separate track of course for the criminal case that the people I just outlined to you were the people involved in the civil case negotiations. I'm fascinated by these initial negotiations, but I will come back to them in a bit. But right now I want to ask you about, I guess the posture of the company because it seems like they maintain their dishonesty the entire time because in November of 2015, just two months after the scandal came to your attention, your EPA accused Volkswagen's Porsche brand of cheating as well. The company in a statement replied that they were surprised to learn this information until this notice all of our information was that the Porsche Cayenne diesel is fully compliant. That Cayenne was later recalled as well. It seems that Volkswagen had been caught in something that they knew was going on. Why do they keep lying at this point? After the September notice of violation that EPA had issued, EPA told VW, look, we're going to test every diesel engine you're selling in the United States. Everyone. Tell us now, are we going to find anything else? And they assured us no. And yet after we did the testing, we found a defeat device in those larger diesel engines too and issued a second notice of violation. Even after the firestorm that followed that first notice of violation, the CEO was forced out. They didn't come clean, even though we would definitely find out about it. And that's also after they had repeatedly apologized and made promises to us and publicly that they were going to make it right. It's incomprehensible really. I'm wondering in your interactions with Volkswagen, if you got any sense of what in the culture drove them to continually try to get out of this, they've been caught. And yet they don't tell you all the information about their other brands. Then you've discovered that they told members of their staff to do something unethical in regards to the evidence that they might have internally. What did they order their employees to do? Well, our investigation showed that the criminal conduct of VW went well beyond the defeat device. There were a couple things that happened that the public I think is less aware of. One is that in the summer of 2015, after it became obvious to them, they were out of options. They were going to have to tell EPA about this defeat device. But before admitting it, they told the employees to delete files. We later discovered that as many as 40 employees did that. So as the walls were closing in on VW, they destroyed evidence. The other thing that emerged in the investigation is earlier in 2015 when EPA and CARB were still in discussions with the company trying to understand what explain these excess emissions that we were finding. VW said, oh, no problem. That's a technical issue. We can fix that. So we just need to update the software. So they did a recall. They updated the software. And we later found out that instead of solving the problem, the update made the pollution worse. So they doubled down on the cheat in the midst of the conversations they were having with regulators. I would say the conduct of VW in this case is a really good illustration of why EPA has criminal enforcement agents. If you're into true crime, the Generation Y podcast is essential listening. We started this podcast over 10 years ago to dissect some of the craziest and most notable murders, crimes, and conspiracy theories together. And we'd love for you to join us. Generation Y is one of the longest running true crime podcasts out there. And we are still at it, unraveling a new case every week. We break down infamous cases like the Evil Genius Bank robbery and lesser known cases like the case of Kimberly Rico. Did she actually kill her husband after they took part in a murder mystery game? We cover every angle breaking down theories, diving deep into forensic evidence and interviewing those close to the case. And with over 450 episodes, there's a little something for every true crime listener. Follow the Generation Y podcast on Amazon Music or every listen to podcasts, or you can listen ad free by joining Wondry Plus in the Wondry app. Let's investigate these negotiations with Volkswagen directly. I am very interested in this first meeting, this first small meeting, Volkswagen executives who are startled to discover apparently this scandal in their midst arrive in the EPA's office. They know they're going to get addressing down they may or may not know the scope of the problem in their own company. They certainly act as if in the future that they're going to try and scuttle your attempts to fix this at every point. What was the mood in the room? These are two adversaries meeting for the first time. It was fairly tense, as you can imagine. In Mr. McCarthy made it very clear to VW to the CEO at that meeting that EPA was going to make them do what's required to fix this problem. And there was going to be a huge price tag associated with doing that. And that's what I was going to be. It was apparent to me from the reaction of the people on the VW side of the table that they were not used to that kind of a tough approach from regulators. They were stunned is how they looked stunned. Why do you think that Volkswagen had this this belief that regulators would be softer on them? If they were stunned, I guess I am stunned that they are stunned. Do you have any insight into that? Well, that was my reaction to. It seemed to me self evident that it would have been very clear that we were going to be landing on them with both feet. And they were, I think not used to that in the regulatory arenas that they normally operated in. I would say that they initially in these settlement discussions significantly underestimated our resolve. But they figured that out pretty quickly. And I think they became very clear to them that the only way to resolve the case or to trial was going to be to address the three point structure that we had laid out for them in that January meeting. And that in no way would be giving them the benefit of any doubt. Can you quickly go through from that first meeting how negotiations evolved? Certainly their posture probably changed as you learn more information. When did things really when did the shoe really draw for them? Well, the first couple of meetings after that initial meeting with Mr. and my carthy were, you know, she had made it really clear to them that they were going to have to make this right whether they want to or not and were prepared to go to court. But we had also in that meeting opened the door to a possible resolution and told the company that we hoped that they would use this opportunity to be forward looking to be bold to think big and and explore the possibility of turning this catastrophe into something good. We didn't have high hopes for that because this was obviously a company that was under siege. And there was every reason to think that they would be in a defensive crouch. But they did after that first meeting, they did decide to invest in a cleaner car future and did think ahead. So that that turn around by VW is reflected in the settlement agreement that we ultimately reached. You mentioned that Volkswagen wasn't accustomed to the sort of resolve that your EPA presented them. I was wondering if you can tell us what power the EPA has over matters like this. It's quite a bit. I mean, you could control Volkswagen's ability to do business in the US entirely in the future. What are the boundaries of the EPA's power and instances like this? So in the summer of 2015, after a long time of VW giving EPA and CARB, they run around about the explanation for these high emissions. The EPA said to VW, look, we are not going to issue your certification for your upcoming model of your diesel vehicles, which you need to have to sell any vehicles in the United States. We're not issuing that until we get a credible explanation for these high emissions. I think that's when VW realized that they were not going to be able to get away with this cheat, that they were going to have to disclose it to EPA and CARB. And, you know, the similar dynamic happened in the negotiations for the civil settlement. VW certainly understood that they need the certification from EPA to sell vehicles. And that EPA is certainly prepared to deploy that if needed to protect the public. Our objective and our charge under the federal environmental laws that EPA enforces is to make sure that people comply with the law and to remedy the harm they caused by violating. And the boundaries of how we do that are laid out in the laws that we enforce. Every case is different and the remedy for any case is tailored to the facts of that case. In this particular case, the behavior was so egregious and knowing and deliberate and the harm so widespread that it was totally appropriate under the Clean Air Act for us to insist that VW not only fix the cars or take them out of commission, but also remedy all the harm that they had caused by having the polluting vehicles and marketing them as green when they were actually higher polluting. At the end of this process, after several negotiations and months and months, what was the final result? What did Volkswagen finally agree to? The final deal followed the structure that we had outlined to VW in that first meeting in January. So taking the polluting cars off the road, offering the consumer the choice of having their vehicle bought back by the company or waiting to see if a fix could be decided on between EPA and the company. It's always central to the EPA's pollution case that we insisted on the buyback option from day one. So that element of the agreement was estimated by VW to cost maybe in the vicinity of $10 billion. The second element was cutting knocks. That's the type of pollution that was concerning from the illegal vehicles cutting knocks by creating a fund to that the states could use to cut emissions from older diesel engines like trucks or buses that were highly polluting school buses is one great example that many states are using the money to address. The estimated total of that was about $3 billion between the two cases, the two leader and three leader engine cases. And this is really paying off across the country even today. I see stories all the time about this state that state is buying a lot of new school buses that are going to both reduce pollution the community and reduce exposure for the kids who ride them. And then the third element was supporting clean cars. So the W would cause harm to the market for lower emitting vehicles in the United States by marketing these cars is green people who were wanted to buy green or lower polluting cars were buying these diesels and not aware that in fact they were high emitting cars. The third element was to write that wrong by investing in zero emission vehicle infrastructure and that investment amount we agreed on was $2 billion. So the total for the these elements addressing the pollution elements of the case by EPA and car was about $15 billion. The company also on the separate track the company also pledged the numerous felonies and paid civil and criminal penalties 4.3 billion and of course multiple executives of the W were dieted. Volkswagen was presented with this tripartite this three plank option from the very beginning and yet they they wrangle with you over the course of months if not years in the end they they are find almost $20 billion and untold reputational harm to really just agree to what you presented them in the beginning. At the end of these negotiations did you sense any sort of contrition on the part of Volkswagen's leadership. Well the people that were most involved in the perpetrating this fraud were not in the room for these negotiations which is a good thing because that would have made it a lot harder for us to put aside our anger and find a way to repair. The damage but I would say that over the course of this settlement we did outline this three part structure to VW right from the beginning and while they initially resisted that I think they quickly realized that following that pathway was the only way to get to a settlement and not have to go to trial on this case. So they did accept that three part structure and the remainder of the time of the discussion was dealing with the incredibly complex details of this settlement and we did this is probably the most complicated settlement I have ever been involved in. A lot of engineering details technical complexity very large obviously and we did it in record time so we issued the first notice of violation in September and by the following June we had this 225 page consent degree so we moved incredibly quickly for such an amazingly complicated case. If this was the most complicated case and done very quickly and done well is wondering if you could tell me who were in your estimation the heroes of this process who are the people who worked hard to get to this result. In my view the heroes are the engineers at EPA led by the amazing Byron Bunker to both reveal the defeat device make it very plain to VW that we were going to have no difficulty proving this case in court. And found a way forward on the technical side to make this happen so the the EPA engineers and then I would say also the EPA lawyers who found a way to structure this very complicated deal working with course with our colleagues at DOJ to bring a resolution to this. And then the catastrophic problem that was both fair to the people have been harmed and was going to provide long term benefit to the American public in the form of reduced emissions across the country which we are still benefiting from today and additional support for the future of clean cars in America. And unfortunately this story is still not over in early December German prosecutors rated Volkswagen headquarters over documents related to another diesel engine. The successor to the one at the heart of this scandal so it does not seem to be ending anytime soon. But still what lessons can we take from the chapter that you were involved in where do we move forward I think there's two main takeaways from the US experience with VW one is that government needs to be constantly updating. It's approach need to make it harder to violate and easier to catch companies that do violate EPA thought that we had sophisticated and rigorous testing of these vehicles designed to understand what the performance was going to be in the real world after VW that approach has been significantly improved. And underscores I think that that underscores the reality that many companies do violate pollution standards including the largest and best known. Companies are finding new and sometimes shocking ways to violate these standards and the regulators have to be 10 steps ahead. The other the other thing that I think many people took away from this experience is the importance of tough enforcement as an essential part of effective regulation. And the companies need to know that if they violate and put people's health at risk that the government has both the ability and the will to hold them accountable. I think we made a lot of people in the US and other around the world. I think we made a lot of people believers about that. And in this process you were clearly highly involved but it's not just work for you. This is probably a field you've chosen to be passionate about. So I was wondering what what was your worst day in this process? The worst day was probably the first day when when I found out about VW having engaged in this behavior. We like to think we like to think that and many people do think that the largest companies would not do this kind of thing. My experience of course as an enforcer has been yeah a lot of companies do bad things. But VW had presented itself as ahead of the pack on pollution controls as a company that believed in clean cars. Particularly upsetting and enraging to see that they presented that face to the public while they had lied directly to us about what they were actually doing. That was a discouraging and upsetting day. But very quickly we turned from all right that happened. We're going to make this right and we head down. We're going to make this thing happen and we worked hard from that day all the way to the end. The reciprocal question would obviously be what was your best day? What was it the end result? The best day I would say was an internal day. When after several meetings and back and forth with the company we understood that the company was going to accept the structure that we had laid out. We were going to talk about how to get there. How big? That was obviously a big point of contention. How big were the numbers going to be in each of these categories. But once we got over the threshold of yep these are the things that have to happen. It's got to be a buy back. You're going to have to pay to reduce knocks. You're going to have to fix the harm to the market. That's when I thought okay this could really happen. And what did that make you feel? Like we were going to succeed in doing what our job is as the government of protecting people. We're going to succeed in taking this horrible violation and the shocking behavior of this company and turn it into something that would benefit people all across the country. That's why the people at EPA come to work every day. That's their motivation. That's what they're there to do. And to understand that we were going to be able to do that was that's why we do it. Cynthia Giles, thank you so much for joining me today. Thanks for inviting me. That was my conversation with Cynthia Giles, head of the enforcement office at the EPA during the Obama administration. Next on American scandal. Lenny Bruce was a stand up comedian known for his withering social commentary and racier rhetoric. But in the 1960s his humor earned the attention of not just national audiences but local police. And soon he found himself on trial charged with performing obscene material. They were charges that could land him in jail. His case raised profound questions about the limits of free speech and it would change how America looked at its artists and performers. From Wondery this is episode five of five of Volkswagen for American scandal. In our next series Lenny Bruce was a stand up comedian known for his withering social commentary. But in the 1960s his humor earned the attention of not just national audiences but local police. His subsequent obscenity trial raised profound questions about the limits of free speech and would change how America looked at artists and performers. American scandal is hosted, edited and exeked produced by me Lindsey Graham for airship, sound designed by Derek Barrett. This episode is produced by Austin Cross. The Volkswagen Emission series was written by Hannibal Diaz, edited by Christina Malsberger, produced by gay ribbon. The exeked producers are Stephanie Jenns, Jenny Lauer Beckman and her non Lopez for Wondery.