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Bill Black examines the corrupt corporate worlds of Germany and the U.S. and how Trump ignores corporate malfeasance

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MARC STEINER Welcome to The Real News Network. I’m Marc Steiner. Great to have you all with us. Martin Winterkorn, the former C.E.O. of Volkswagen, is on trial in Germany. He could face up to 10 years in prison. In 2015, researchers at West Virginia University found that V.W. had been using illegal software to pass emissions tests even though the engines themselves continued to admit noxious gases. V.W. admitted it was using illegal software back in 2015, in September of that year. The U.S. wants to extradite Winterkorn, though that will probably not happen because Germany does not extradite its own citizens. But most importantly for this discussion, why should this concern us at all? What does it mean? Why is it important? And what do we need to understand about this in terms of corporate abuse of power and responsibility? To walk us through all this, we once again turn to Bill Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City, and author of The Best Way to Rob a Bank is to Own One, and a regular contributor here at Real News. Bill, welcome back. Good to have you with us again.

BILL BLACK Thank you.

MARC STEINER So where do we start with this? I remember when this happened a few years back when this first came out and is being prosecuted at this moment but talk about why this particular case is so important, what it means.

BILL BLACK Sure. Let’s go back to when it actually happened which is not in 2015, but many years before. So V.W.’s global strategy was they were going to become the biggest car company in the world and they were going to do it the old-fashioned way, by cheating. So they had an impossible task and it’s a classic example of too good to be true. They were going to start with diesel fuel because that had lots of advantages in terms of producing a relatively cheaper engine. Even though diesel fuel inherently tends to be more polluting, they were going to do some miracle and it was going to end up being an extraordinarily low-emissions automobile. Only one problem— it didn’t work and it never worked. So what’s the obvious answer when your fraud scheme fails? You create a second fraud scheme and the second fraud scheme was to claim that you met the emissions levels. But of course, people were going to test that, so you needed a third-stage fraud scheme. We’re all in awe of German technology and such, and V.W. is at the top of the game, but a) V.W. couldn’t in fact produce clean diesel any more than you could create clean coal, and b) it didn’t have the technology to create the cover up. The cover up is just basically an algorithm. The algorithm says, oh, we’ve got sensors because a modern vehicle is really a whole bunch of sensors. It’s really a whole bunch of computer chips and we sense the following sixteen things are happening. We’re being tested for emissions level and the algorithm says, okay let’s change how the engine performs. And under the new way the engine performs, emission levels fall enormously. It’s just if you actually ran the engine that way, not on a test bed but on a road, you could go 20 miles an hour, so it doesn’t work as a vehicle. It is a pure scam and it’s not a little scam. It’s not like V.W. failed to meet the emissions level by a little bit. The actual emission levels of nitrous oxides in particular can be twenty times the emission levels permitted. So this is a massive scandal and because V.W. lacked the expertise to do the algorithm instrumentation scam internally, they actually outsourced it. So they outsource their cover-up fraud, where another company was happy to create a software— the sole purpose for the software being, to cover up a massive fraud.

MARC STEINER And it worked.

BILL BLACK And it worked, and they sold 12 million vehicles globally, 500,000 in the United States, under this double fraud thing that their engine actually was low-emissions and that they didn’t do anything to the testing. It was all completely kosher when it was in fact all completely rigged. First thing, this was spectacularly successful. It allowed V.W. to become the largest car producer in the world, create enormous profits, and millions of euros went into the pockets of the…

MARC STEINER All from this one act, from creating this piece of software?

BILL BLACK Two acts, two acts. One, from creating the engine that didn’t work [laughter]. And two, from creating the engine that didn’t work, but was cheap. And then, creating the software to hide the fact that the engine didn’t work. So it’s actually those two acts that were critical to their “success.” It was enormously successful. The company made a ton of money. The chief executives made a ton of money. The software company that created the device solely to be a scam made a ton of money. Everybody was happy except, of course, for the honest competitors and, of course, for the fact that this actually kills people. The nitrous oxides aren’t the absolute most lethal things, but the bottom line is they were literally willing to kill people through massive frauds on 12 million vehicle sales in order to become personally wealthy when they were already extraordinarily wealthy people. So that tells you about corporations.

MARC STEINER Well let’s take this to where we live right now, what’s happening now. So Martin Winterkorn, the former C.E.O., is on trial in Germany. He may go to prison if he’s convicted, seven to ten years is what I read. Talk about what’s going on between our two countries around this. Corporate leaders from the bank fallout to everything else have gotten away with murder all the time. They never go to jail. They never have to answer individually to what they’ve done. So what’s different here, if anything?

BILL BLACK Well it’s not clear that anything will end up being different. And some of them do go to jail. It’s just that the graph in the United States, super elite frauds look like this. Convictions are declining under every administration for the last four administrations, that included Obama, but of course it’s off the charts now. And the Trump administration, we’ll come back to why would the Trump administration actually be willing to be tough on the Germans, but let’s start with your broader question. So Germany is actually the place that gave us Transparency International. This is the global anti-corruption group of ex-businesspeople and their story is, oh, there are these poor companies all honest in the global north and they want to do business, and unfortunately the global south is enormously corrupt. And so, it creates transparency and anti-corruption scales. And guess who’s the best in the nation usually, the best in the world usually, among advanced nations? Why, that would be Germany. And where are the bad places? Well that’s all those people with brown skin, except that now this isn’t just the most prominent firm in Germany. Deutsche Bank, the champion Bank of Germany…

MARC STEINER That we talked about a few weeks ago together. Yes, right.

BILL BLACK Right, just a massive criminal enterprise with actually scores of scams and felonies.

MARC STEINER And they’re involved in this scandal, as well?

BILL BLACK No, no, no, but this is Germany. It’s Siemens, their absolute star in industry that turned out they were bribing all those folks, internationally. So Germany has a crisis. Germany has massive tax evasion by the wealthy, as well. So they not only cheat and become wealthy by cheating, but then there such S.O.B.’s that they don’t want to pay any taxes on these massive gains, so they cheat on their taxes, as well. Lots of Germans are absolutely disgusted with this and see this as basically the death of what used to be some degree of German ethics so it’s hitting there. In Germany, this has become such a scandal that they actually started investigating. They had a raid involving 300 investigators. Imagine that in the United States context. And they’re alleging that it isn’t just Volkswagen and its affiliates. They’re alleging that there is— they, being German authorities— that there is a cartel among the leading manufacturers. In other words, Mercedes along with V.W. in particular, in which the agreement is not to develop safety standards, particularly better emitting engines by far. And so, the German authorities think that’s a very real thing that they’re currently investigating. Germany has little history of putting senior executives in prison for any significant time. Even when they’re initially sentenced to five years, it’s very common that they don’t serve more than a fraction of that time period. So we’ll see whether they’re willing to do anything.

MARC STEINER So tell me, what I would like to get to, Bill, is two things very quickly because we don’t have a lot of time is that: a) why is it so important for us to be following, from your perspective? And b) what role, the U.S. is playing a very different role than we expected them to play. They are really trying to extradite Winterkorn. It seems like they are being a little aggressive in this one, which they have not been for other industries, especially in this country. So tackle those two things, if you could for us.

BILL BLACK So the four most important firms in Germany are all involved in these series of modern scandals. So everywhere a German, educated German, looks they go, oh blank, we have become a nation that is profoundly corrupt. And that’s created a Gresham’s dynamic in which everybody that wants to stay in business, has to get corrupt as well. And these incredibly wealthy people are willing to cheat to get even wealthier and they’ll do so even if they have to kill people. Now the U.S., and what’s interesting of course is we’ve talked about it. There has been a collapse of enforcement at every major federal agency. So why has the Securities and Exchange Commission just a month ago filed this very vigorous action against V.W., and we have the Justice Department being active? Well, it’s because Donald Trump has been saying openly in recent days, it all comes down to car exports. He’s done this in the Mexican context, but actually U.S. and German automobile manufacturers are heavily involved in Mexico for export to the U.S. and other markets, as well. Trump is focused entirely on automobiles in his great trade battles and this is an opportunity to really stick it to a global rival. So now we have the…

MARC STEINER So this is an exercise in nationalism really, and not an exercise in any kind of corporate accountability.

BILL BLACK Worse. It’s an exercise in selective prosecution to actually help domestic giants who themselves commit all kinds of violations of the law, as well. And so, it’s the further breakdown of the rule of law in the United States and the personalization where you see Trump wants to use the powers of the government to go after anyone he views as a political or economic opponent.

MARC STEINER So this conversation has been a lesson in don’t believe all the headlines and do understand what’s beneath them, which Bill Black brings to us all the time. Bill Black, thank you so much. This has really been enlightening. I appreciate your time once again. Great to talk to you, as always.

BILL BLACK [inaudible]

MARC STEINER [laughter] And I’m Marc Steiner here at The Real News Network. Thank you all for watching. Take care.

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William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.