Is committing fraud really worth it?

In 2015 Volkswagen shocked many of their customers, following the scandal which left at least 36,000 of the vehicles they produced with irregularities in terms of their carbon dioxide emission levels. In order for this to happen, VW had fitted many of their diesel cars with a “defeat device” which was able to detect when the vehicle was being tested for emissions, therefore changing the performance of the car in order to improve final results. However, it didn’t just stop at the 36,000 cars affected, following the scandal all over the world environmental, political and regulatory groups cracked down on the company forcing VW to recall over 12 million of their cars across the globe. Following on from this Volkswagens shares fell by about a third, now this just really isn’t good for business so what is the point?

One explanation I learnt whilst in one of my university lectures, which shows reasoning behind why a company would commit fraud, is Donald Cressey’s ‘Fraud Triangle Theory’ in which there are three main motivators behind fraud. The first of these factors is ‘Pressure’, as in any crime there will be some level of pressure to commit said crime, broadly for example this could be due to gambling debts, drug addiction or money problems, however, in relation to VW, a possible main pressure here could have came from the board of directors wanting the cars to be ready for a certain date, which could’ve meant that the legal emissions levels for the cars may not have been possible to achieve in this time scale. The second of the factors is ‘Opportunity’, as for a crime to take place there must be an opportunity available to commit said crime, for example in relation to VW they could have seen the opportunity to fit the cars with a defeat device and at the time would’ve thought that they wouldn’t get caught. The third of the factors is ‘Rationalization’, as anyone who participates in anything unethical will manage to justify to themselves that either what they’re doing or have previously done isn’t wrong, for example in relation to VW, a possible way they could have rationalised their decision is by the thought process of ‘If we hadn’t installed the defeat device, then the cars would never have made it onto the market, therefore meaning our customers would be left without the new model of car’.

As well as the extremely high number of cars that were recalled, there was also the possibility of a $37,500 fine from the Environmental Protection Agency (EPA) for every vehicle that breached vehicle standards, which luckily for them has been capped at a maximum of $18 billion as if all of the recalled cars from around the world received a fine, VW would have to fork out a monstrous sum of around $450 billion. To make matters worse for VW it doesn’t just stop there, as they may end up having to pay out even more than the $18 million, due to the inability to estimate how much it is going to cost them if their shareholders and consumers decide to take legal action against them. Due to the recall on cars, VW set aside $6.7 billion to cover costs, however this doesn’t even cover half of the fine from the EPA and even after only setting the $6.7 billion aside, it then meant that they were operating at a loss, so the total damage to their finances after paying everything off will just be horrific.

Overall, I think that VW’s decision to install a defeat device in their diesel cars was 100% not a well thought out plan, and if the board of directors took even a minute of time to discuss their options in terms of their vehicles, they would have definitely realised that the decision they were making was stupid. The main point I think that needs to be highlighted here is, if VW set back the manufacturing of their diesel cars to enable the right level of emissions for each car, then the amount of money lost would be nowhere near the extremely high amount of money that they did lose due to fines from regulators and the recall of over 12 million of their cars. As well as this VW will now have to regain back a level of trust from consumers as currently they may be less likely to purchase a VW vehicle due to the fear that the company is still committing fraud and being totally unethical, as a result of this VW may continue to lose out on profits, at the same time as having to attract a large amount of shareholders to gain back the third that they lost following the emissions scandal.