The US Justice Department announced criminal charges against former Audi manager Giovanni Pamio late last week. The 60-year-old manager was on a team concerned with thermodynamics in Audi’s diesel engine department between 2006 and 2015—the years when Volkswagen, Audi, and Porsche were producing diesel vehicles that included "defeat device" software. The illegal software killed the cars' emissions control system when the cars sensed that they were being driven in real-world conditions and not in a lab where emissions were to be detected and reported to the Environmental Protection Agency (EPA).

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According to the Justice Department , Pamio and his team realized that it would be impossible to meet nitrogen oxide (NO) emissions standards without the addition of a large tank for urea formula, called AdBlue, which would have neutralized some of the emissions. The addition of the large AdBlue tank would "interfere with features considered to be attractive to customers, such as a high-end sound system," the Department of Justice said.

Pamio then allegedly "directed Audi employees to design and implement software functions to cheat the standard US emissions tests," and gave false information to US regulators about how those software functions worked.

According to a detailed report from third-party researchers that came out in May, Audi diesel vehicles appear to have been the first cars with regulation-cheating software, which was later expanded for use on Volkswagen-branded cars. It started out simply enough: engineers wanted to inject extra fuel into the Audi's engine during ignition to prevent it from making a rattling noise. The software to disguise the extra emissions on startup was called "the acoustic condition: and it was expanded over the years to check for lab conditions and change emissions control response accordingly."

Pamio, an Italian citizen, was arrested in Munich last week. The Justice Department previously indicted seven VW Group executives, including Oliver Schmidt, former chief of Volkswagen's environmental and engineering operation, who was arrested in Florida in January. Another VW employee, James Liang, pleaded guilty to criminal charges in 2016.

Misleading investors

According to Reuters, German magazine Bild am Sontag reported that in August 2015, Schmidt, who is awaiting trial in Michigan, told then-CEO Martin Winterkorn that the penalties for cheating US regulators could cost the company up to $18.5 billion. Schmidt allegedly made these comments a month before US regulators issued their Notice of Violation to Volkswagen and a month before the company informed investors of the potential cost.

Reuters explains that German securities law mandates that companies report any market-critical information to investors in a timely manner. In a letter last year , VW Group executives tried to mitigate potential lawsuits from investors by saying that they did not think fines from US regulators would be particularly high, since they hadn’t been high in the past. "It was expected that the diesel matter could be resolved with the US authorities by disclosing the software modification, agreeing on appropriate measures to restore vehicle compliance with the law and the payments of potential fines in line with prior US settlements," the company wrote in 2016.

Winterkorn had also allegedly been at a meeting in late July 2015, where he was informed that VW diesels were using illegal defeat devices. In the 2016 letter, VW cast doubt on that information, claiming that "It is not clear whether the participants understood already at this point in time that the change in the software violated US environmental regulations. Mr. Winterkorn asked for further clarification of the issue."

Correction: This story has been updated to note that Pamio was arrested in Munich last week.