ESG Enforcement Tracker

Key facts:

In January 2020, before the Ontario Court of Justice, Volkswagen Aktiengesellschaft (VW) pleaded guilty to 60 offences under the Canadian Environmental Protection Act 1999 (CEPA) and was sentenced to a fine of CAD$19.5million, Canada’s highest ever environmental-related fine, in connection with its diesel emissions scandal. The sentencing judge described this as “approximately 26 times more than the largest fine ever imposed for environmental infractions in Canada”, signalling “a new era of substantial fines for environmental infractions”.

VW pleaded guilty to 58 counts of contravening section 154 of CEPA by unlawfully importing into Canada vehicles that did not conform to prescribed vehicle emissions standards, an offence under paragraph 272(1)(a) of CEPA, and to two counts of providing misleading information contrary to paragraph 272(1)(k) of CEPA.

Under CEPA and the On-Road Vehicle and Engine Emission Regulations, which came into effect in January 2004, (together the CEPA regime) vehicle emissions standards in Canada were harmonised with those of the US Environmental Protection Agency (EPA), made under the US Clean Air Act. These included standards for nitrogen oxide (NOx) emissions for diesel vehicles.

Under the CEPA regime, companies were prohibited from importing into Canada certain vehicles for sale unless they conformed to the prescribed EPA NOx standards at the time their main assembly or manufacture was completed, and unless evidence of their conformity was obtained. Companies could rely on the EPA certificate of conformity to US federal emissions standards as evidence in Canada of conformity, and the certificate of conformity was to be submitted to Environment and Climate Change Canada (ECCC).

According to an agreed statement of facts, VW and Audi AG (which was 99.5% owned by VW) had designed vehicles that satisfied EPA testing by using only “defeat devices” which could recognise whether vehicles were undergoing emissions testing and operate in a mode which reduced NOx emissions, satisfying the prescribed EPA NOx standards, or whether they were being driven on the road under normal driving conditions and operate in a different mode, under which their NOx emissions were significantly higher and in breach of the standards.

VW applied for certification from the EPA for certification and relied on the EPA certificates in Canada as valid evidence of the vehicles’ conformity with the Prescribed EPA NOx Standards, and affixed or caused to be affixed an emissions label to the vehicles’ engines. In addition, following hardware failures that developed in its vehicles in North America, VW employees falsely told or caused others to tell ECCC by way of Notices of Defect on or about 12 December 2014 and 10 March 2015 that a software update was intended to improve vehicles when, in fact, they knew the update also improved the effectiveness of the defeat device that reduced the effectiveness of the emissions control systems and caused the vehicles to emit substantially higher NOx than the prescribed standard.

The statement of facts also stated that, through certain employees, VW deceived the EPA, and therefore also the ECCC, about whether vehicles which were imported into North America from approximately December 2008 to approximately November 2015 complied with the prescribed EPA NOx standards.

In sentencing VW, Justice Rondinelli described “a very sophisticated illegal scheme” involving deception that was “prolonged, involved complex technology, and spanned throughout the global [sic]… much to the detriment of the environment and human health, and primarily for the benefit of the company’s bottom line”.