On January 4, 2016, the DOJ, on behalf of the EPA, filed a civil complaint against Volkswagen AG, AUDI AG and other companies of the Volkswagen Group. The claims asserted under civil law are based on the alleged use of the defeat device software in violation of the U.S. Clean Air Act. The complaint’s allegations relate to both the four-cylinder and the six-cylinder diesel engines. Volkswagen AG held internal development responsibility for the four-cylinder diesel engines within the Group, and AUDI AG for the six-cylinder diesel engines.

In the USA and Canada, three variants of certain four-cylinder diesel engines are affected. For the vehicles with six-cylinder diesel engines, the software parameters are being revised so that they can be resubmitted for approval in the USA. Due to these considerably stricter NOx limits, it is a greater technical challenge to refit the vehicles so that all applicable emissions limits can be met. Volkswagen is in intensive discussions with the EPA and CARB concerning remedial measures. The technical solutions will be implemented as soon as they have been approved by the authorities. The respective US and Canadian companies of the Volkswagen Group have withdrawn all affected new vehicles from sale with pending approval of technical solutions.

In June and December 2016 and January 2017, Volkswagen AG, AUDI AG, Volkswagen Group of America, Inc. and certain affiliates reached settlement agreements in the USA with the DOJ on behalf of the EPA, CARB, and the California Attorney General, the US Federal Trade Commission (FTC), and private plaintiffs represented by a Plaintiffs’ Steering Committee (PSC) in the Multi-District Litigation pending in California.

The settlement agreements will resolve certain civil claims made in relation to affected diesel vehicles in the USA: approximately 475,000 vehicles with four-cylinder diesel engines from the Volkswagen Passenger Cars and Audi brands and around 83,000 vehicles with six-cylinder diesel engines from the Volkswagen Passenger Cars, Audi and Porsche brands. In October 2016, the court finally approved the settlement agreements in connection with the four-cylinder diesel engines. A number of class members have filed appeals to an US appellate court from the order approving the settlements in connection with the four-cylinder diesel engines. The court has yet to approve the settlement agreements in relation to the six-cylinder diesel engines, which were lodged with the court on January 31, 2017.

The settlements with respect to the four-cylinder diesel engine vehicles provide affected customers with the option of a buyback or, for leased vehicles, early lease termination, or a free emissions modification of the vehicles, provided that EPA and CARB approve the modification. The settlements with respect to the six-cylinder diesel engine vehicles, which remain subject to court approval, provides for a buyback or, for leased vehicles, early lease termination program, or a free emissions modification provided that EPA and CARB approve the modification, for Generation 1 six-cylinder vehicles, and a free emissions recall and modification program (pending EPA and CARB approval) for Generation 2 six-cylinder vehicles. If modifications are not approved for Generation 2 six-cylinder vehicles, the settlements require Volkswagen to offer a buyback or, for leased vehicles, early lease termination for those vehicles. Volkswagen will also make additional cash payments to affected current owners and lessees as well as certain former owners and lessees.

In addition, Volkswagen agreed to support environmental programs. Volkswagen will pay USD 2.7 billion over three years and Audi will make an additional one-time payment in the amount of USD 225 million into an environmental trust, managed by a trustee appointed by the court, to offset excess NOx emissions. Volkswagen will also invest in total USD 2.0 billion over ten years in zero emissions vehicle (ZEV) infrastructure as well as corresponding access and awareness initiatives for such technology. In addition, the six-cylinder vehicle settlement, if approved by the court, calls for an additional USD 25 million payment to CARB to support the availability of ZEVs in California.

In January 2017, Volkswagen AG agreed with the US government to resolve federal criminal liability relating to the diesel issue. The Volkswagen Group also agreed with the US government to resolve civil penalties and injunctive relief under the Clean Air Act and other civil claims against the company relating to the diesel issue.

The coordinated resolutions involve four settlements, including a plea agreement between Volkswagen AG and the DOJ. The plea agreement is accompanied by a published Statement of Facts that lays out relevant facts and has been acknowledged by Volkswagen AG.

As part of its plea agreement, Volkswagen AG has agreed to plead guilty to three felony counts under US law: conspiracy, obstruction of justice and using false statements to import cars into the US. The plea agreement, which is subject to US federal court approval, provides for payment of a criminal fine of USD 2.8 billion and the appointment of an independent monitor for a period of three years. The independent monitor will assess and oversee the company’s compliance with the terms of the resolution. This includes overseeing the implementation of measures to further strengthen compliance, reporting and monitoring systems, including an enhanced ethics program.

Volkswagen AG, AUDI AG and other Volkswagen Group companies have further agreed to pay, subject to court approval, a combined penalty of USD 1.45 billion to resolve US federal environmental and customs-related civil claims in the US. Furthermore, Volkswagen AG and Volkswagen Group of America, Inc. have agreed to pay a separate civil penalty of USD 50 million to the Civil Division of the DOJ to settle potential claims asserted under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). Volkswagen AG and Volkswagen Group of America, Inc. specifically deny any liability and expressly dispute FIRREA claims, which they are settling to avoid the uncertainty and expense of protracted litigation.

By their terms, these agreements resolve liability issues under US law and are not intended to address any liability issues, where such exist, under the laws or regulations of any jurisdiction outside the United States. Volkswagen continues to cooperate in full with investigations by the DOJ into the conduct of individuals.

Furthermore, Volkswagen reached agreements with the attorneys general of 44 US states, the District of Columbia and Puerto Rico to resolve their existing or potential consumer protection and unfair trade practices claims – in connection with vehicles in the USA fitted with four-cylinder and six-cylinder diesel engines – for a settlement amount of USD 603 million.

These settlements do not resolve potential state environmental claims related to the affected vehicles or certain other claims. Moreover, investigations by various US regulatory and government authorities, including in areas relating to securities, financing and tax, are ongoing.

In September 2016, Volkswagen announced that it had finalized an agreement to resolve the claims of Volkswagen-branded franchise dealers in the United States relating to the affected vehicles and other matters asserted concerning the value of the franchise. The settlement agreement includes a cash payment of up to USD 1.208 billion and additional benefits to resolve alleged past, current, and future claims of losses in franchise value. The court finally approved the settlement agreement in January 2017. This approval order is subject to appeal before an US appellate court.

In Canada, the NOx emissions limits for vehicles are the same as in the USA. Civil consumer claims and regulatory investigations have been initiated for vehicles with 2.0 l and 3.0 l diesel engines. In December 2016, Volkswagen AG and other Canadian and US Volkswagen Group companies reached a class action settlement in Canada with consumers relating to 2.0 l diesel vehicles. The settlement provides for cash payments of up to CAD 564 million to eligible owners and lessees, and many of these affected customers will also have the option of a free emissions modification of their vehicle if approved by regulators, or a buyback or trade-in or – for leased vehicles – early lease termination. The class settlement is subject to court approval, the hearings for which are scheduled for March 2017. Concurrently with the announcement of the class settlement in December 2016, Volkswagen Group Canada agreed with the Commissioner of Competition in Canada to a civil resolution of its regulatory inquiry into consumer protection issues as to 2.0 l diesel vehicles. This resolution was reached with the benefits in the class settlement, and Volkswagen Group Canada will also pay a CAD 15 million civil administrative monetary penalty. Civil consumer claims and the Commissioner of Competition’s investigation with respect to 3 l diesel vehicles remain pending. Also, criminal enforcement related investigations by the federal environmental regulator and quasi-criminal enforcement related investigations by a provincial environmental regulator are ongoing in Canada related to 2.0 l and 3.0 l diesel vehicles.