Comment by dalbasal | Hacker News Reader

Comment by dalbasal | Hacker News Reader

The European auto-manufacterer test cheating is really, really pernicuous. It is mistake to view this as simple test cheating. These tests are a greater part of the "green/carbon reduction" policies that is europe's primary industrial policy of the last decade.

Domestic auto manufacturers have been primary authors of these policies. The bootlegger and baptist dynamic has been very strong here. The "baptist" objective has been carbon/pollution reduction. The "bootleggers" wanted to sell more European cars by (A) giving them an advantage over imports and (B) shortening the lifespan of older cars. They have had an extremely favourable regulatory environment, EU & locally. Pollution-centric tax bands favouring local manufacturers (based on these tests) are just a piece of that. To cheat the tests on top of all this is beyond the pale.

All that said, I think we have no way of holding corporations accountable. Prosecuting individuals is important (and effective), but it also semi-absolves the company. It makes it seem like individual bad actors acted against the law, and against the company. There aren't really ways of holding the company accountable, and limited liability becomes no liability in this sense.

I don't even know what should be done. "Justice" (IMO) would be fairly harsh. Volkswagon Group have annual Revenue & Gross Profit of 230bn & 40bn respectively. Trillions and hundreds of millions over the life of this scam. Some nontrivial portion of these sales were unearned in the sense that they would not have happened without fraud. €1bn-€2bn isn't even meaningful.

I think that shareholders should get a haircut, with a meanigful portion of the company's current value being turned over as a fine. Of course, this would only encourage a restructuring from equity to debt. IDK....

An individual business owner acting under full liability would have (in addition to jail time) almost certainly lost her entire business over something like this. To Volkswagen Group, it's a bump in the road. This is not fair.

> Prosecuting individuals is important (and effective), but it also semi-absolves the company. It makes it seem like individual bad actors acted against the law, and against the company.

I'm struggling to see how prosecutors can win when the public has this attitude. Bring criminal charges against an executive? "You're semi-absolving the company." Bring record fines against the company? "Nobody jails the executives." Do both? People forget whichever happened first and recycle the above.

> I think that shareholders should get a haircut

This is what it means to fine a company. Takata Corporation had to file for bankruptcy as a result of its defective airbag inflators [1]. Shareholders lost and creditors lost (as did employees and those down the supply chain).

[1] https://en.wikipedia.org/wiki/Takata_Corporation

Well stated. I do not see how prosecuting individuals can be a bad thing. There _must_ be a critical point of individual prosecutions becoming commonplace enough before engineers being forced to play dirty say "Fuck you motherfucker" and report such behaviour to HR or to higher ups etc.

Engineers must have the ability to whistleblow to an independent regulator outside of their organization.

>> to an independent regulator outside of their organization.

Once upon a time that regulator was 'the press'. This is the sort of area where independent media support functional democracies.

The engineer goes to a reporter. The reporter keeps the engineer's identify secret. If and when the police get serious about a prosecution, the engineer can then identify himself to authorities. Should the authorities decide not to investigate after reading the media reports (a very common situation) then the engineer's identity remain a secret held by the reporter.

But this all breaks down these days when authorities simply shout 'fake news' and ignore media reports.

I don't think it's a bad thing. I think it's an important thing, and I think it will be effective for preventing bad behaviour. If it seems otherwise, I'm sorry for being unclear.

But.. I am fuming at what a case like this exposes. We have no real way of holding corporations accountable as corporations. If an individual "sole trader" (or even just a small company) did this, they would almost certainly pay with the loss of their entire business. In this case, shareholders are barely affected. I'm angry (hence the ranting) about this, not at the prosecutor. I'm also don't have a solution.

> they would almost certainly pay with the loss of their entire business

As the Takata example shows (and Enron and Arthur Andersen), a big enough fine will wipe out a business.

At the risk of sounding too pedantic: wasn't it the reputational damage that did Enron and Arther Andersen in, eventually?

I'm hairsplitting this because in certain industries, reputational risk is a much stronger deterrent that legal consequences (severe as they may be).

Enron's and Arther Anderson's accounting fraud did them in. Reputation, while certainly diminished, did not play a role in their bankruptcy.

Absolutely worth a watch if you have a chance: https://www.imdb.com/title/tt1016268/

Fraud itself, by definition, is a gain, so that cannot be what did them in.

It's the consequences of getting caught that do you in. The consequences can be fines, the consequences may be legal liabilities, etc. But in some industries, the consequence of losing your reputation effectively means losing your business -- eventually resulting in bankruptcy.

Quoting the Wikipedia page on Arthur Andersen [1]:

> Since the ruling vacated Andersen's felony conviction, it theoretically left Andersen free to resume operations. The damage to the Andersen name was so severe, however, that it has not returned as a viable business even on a limited scale.

Perhaps a better example would be Mossack Fonseca [2], the main firm behind the Panama Papers, who shut themselves down recently because what client wants to be associated with that hot mess?

Your clients running away will kill you a lot faster than any authority (short of industries where an authority can revoke your license to do business, eg: banking).

[1] https://en.wikipedia.org/wiki/Arthur_Andersen#Demise

[2] https://en.wikipedia.org/wiki/Mossack_Fonseca

My understanding is that in Andersen's case, had they been convicted of accounting fraud, they either legally or practically couldn't be auditors for a public company. Since Andersen was really just a bunch of people, it made more sense for those people to move to companies without an accounting fraud conviction, so they could do auditing for public companies.

Take Cambridge Analytica as a more recent example. The company declares bankruptcy after the scandal involving the misuse of Facebook users data but many of the company directors have new jobs at Emerdata, owned by the same parent company.

https://www.bbc.co.uk/news/technology-43989046

Nationalize the organization. This allows you the flexibility to keep employees employed, fix the culture, extract penalties from the org, clawback comp from responsible individuals and remove them from their positions, and haircut shareholders.

Similar to what the US gov did with GM (streamlined bankruptcy/administration).

This requires political will, of course.

  In this case, shareholders are barely affected.

Although in principle shareholders are the owners of the company, in practice it's extremely hard for them to exert any control over it.

Their power is spread too thinly for any of them to do much, they have no way of communicating, and the bars for things like minority shareholder lawsuits are almost unreachable.

Not saying shareholders shouldn't take a haircut - by all means let them! - just that you're going to need to punish execs too if you want to deter this type of behaviour.

I agree, and I realize from comments this wasn't clear (hard to be precise in a rant). Whatever the abstract point, criminal liability for executives is effective. It's also (imo) just. This is criminal fraud.

I don't know what shareholder accountability would do. It may just further incentivize liability dodging by altering the dept/equity ratios. It just doesn't seem right to me that shareholders continue enjoying the fruits of this crime, with a fine amounting to no more than a daily fluctuation in shareprice.

This is the point I wanted to be clear on: this is not a minor fraud. Certain engine types have had a massive advantage in European markets. These happened to be engines manufactured and used by VW. These engines and the tax regime around them made certain, very popular models viable. This was all based on fraud.

Adding insult to injury, this happens to be a tax regime the vw both authored and defrauded.

1bn/70bn was the cost to shareholders, relative to market cap. VW Has a high loan to equity ratio, so this understates how insignificant the fine was, relative to the financial proceeds from the crime.

Were the shareholders or the executives responsible? Punish any and all that are guilty.

This really did have pernicious and deep-reaching consequences. For instance, a bunch of UK cities are so badly in breach of their pollution goals that they're being taken to the ECJ over it: https://www.theguardian.com/environment/2018/may/17/uk-taken... Guess where all that pollution's coming from? Diesel vehicles, of course, including the ones which have been cheating on their emissions.

Amusingly, the manufacturers' ability to 'meet' these stringent standards (by cheating) makes the standards seem within reach, and hence causes the standard to get ratcheted up every few years, to a point where you HAVE to cheat to satisfy it. Vicious cycle.

> These tests are a greater part of the "green/carbon reduction" policies that is europe's primary industrial policy of the last decade.

Yes, because greenhouse gases are a bigger threat to people in the long term than NOx. And because everyone agrees on that the actions of the car companies are not so serious.

And because nearly ever manufacturer engaged in such activity you can't then say everyone is going to jail.

> And because nearly ever manufacturer engaged in such activity you can't then say everyone is going to jail.

This is not how the world works, in my experience. See: groups of protestors getting arrested, etc.

From my perspective, in common law, the company (ultimately the stockholders) would have civil liability for the damages it caused. These would be people stuck with a car that is worth less because it's more polluting than it was advertised, people harmed by diesel emissions, and perhaps a bunch to the government for health care costs.

Additionally, this was not just an innocent mistake. If it were merely an error on the company's part, they would still owe damages for the harm they caused. However, this was deliberate. The executives have criminal liability for defrauding the regulatory authorities and their customers. Even if the damage had been negligible, they would still have been guilty of defrauding the regulators. In this case, executives who signed off on false regulatory declarations or asked others to, should go to prison.

Now I know Germany has more of a civil law system, so it might be different, but the common law approach I suggest above seems just to me.

They are paying huge fines, 27 billion set aside, which is providing a large shareholder "haircut."

Punishing those responsible individuals is the only way to change future behavior of individuals that will eventually hold such positions.

Also, you're completely ignoring how many people these corporations employ that had nothing to do with this. What do you propose for those laid off after a "haircut?"

Individual bad actors or a cohort of bad actors often are what make these companies bad in the first place so punishment for them along with financial penalty in the form of fines is pretty close hitting everyone who should get hit as is.

So far, the bill is €1bn.

If the share holders knew about it then yes they should get a hair cut. Since they didn't it makes much more sense to hold the CEO liable. In theory shareholders can replace a CEO but in practice it is just about impossible. The theory where the CEO skips all liability, as is sometime the case in the US, is a recipe for this behavior to continue.

Reply on news.ycombinator.com