Fiat Chrysler negotiates with feds to resolve corruption probe
Detroit — Fiat Chrysler Automobiles NV is negotiating a settlement that would resolve a federal criminal investigation into whether executives conspired to pay bribes and break labor laws during a years-long conspiracy with the United Auto Workers, according to a federal regulatory filing.
The negotiations are focused on Fiat Chrysler submitting to government oversight for up to five years, paying less than $50 million in penalties and agreeing to make broad institutional changes to emerge from a bribery scandal that has led to eight convictions, including former FCA Vice President Alphons Iacobelli, two sources familiar with negotiations said. Negotiations continue, and one sticking point is whether Fiat Chrysler agrees to admit guilt, one source said.
Fiat Chrysler revealed the settlement negotiations in a May 3 filing with the Securities and Exchange Commission, a disclosure to shareholders of information that could affect financial performance and share prices. They are customarily required for publicly traded companies.
"We continue to cooperate with this investigation and are in discussions with the DOJ about a potential resolution of its investigation," Fiat Chrysler Chief Financial Officer Richard Palmer wrote in the filing. "The outcome of those discussions is uncertain; however, any resolution may involve the payment of penalties and other sanctions."
FCA declined to comment.
A penalty of $50 million or less to settle FCA's role in the federal criminal investigation — even if the agreement includes government oversight — would be dramatically less than the $900 million rival General Motors Co. paid to settle claims for faulty ignition switches implicated in 400 deaths. It also would be a fraction of the $800 million FCA paid early this year to settle diesel claims, or the billions Volkswagen AG paid to atone for its global diesel scandal.
"At this time, we cannot predict whether or when any settlements may be reached or, if no settlement is reached, the ultimate outcome of any litigation," Palmer added. "As such, we are unable to reliably evaluate the likelihood that a loss will be incurred or estimate a range of possible loss."
The ongoing corruption scandal entangling union training centers funded by all three Detroit automakers also has demonstrated that FCA executives wooed union leaders with cash, gifts and other benefits. It also embroiled the late CEO Sergio Marchionne and led to a shakeup of the top ranks of the Detroit-based auto industry.
Negotiations have been underway since at least December. Prosecutors previously have labeled Fiat Chrysler and the UAW co-conspirators in a still-widening corruption conspiracy, an allegation at odds with claims the Auburn Hills automaker and labor union were victimized by rogue employees.
The status of any federal negotiations with the UAW is unclear. Several union officials — including Vice President Norwood Jewell, head of the union's FCA department — have been convicted on charges of violating federal labor laws and receiving illegal payments, gifts and benefits from FCA executives.
"Fiat Chrysler doesn’t have room to maneuver here,” said Peter Henning, a Wayne State University law professor and former federal prosecutor, pointing to the convictions of several company officials. “They’re stuck and have to negotiate as best as they can and take their medicine.”
The timing of the recent SEC filing is significant, Henning said, adding: “If they are disclosing this, they’re getting close to a deal. What this does is help condition the market so that investors are not taken by surprise.”
It is unclear what triggered settlement talks. But in similar cases the local U.S. attorney makes a prosecution recommendation to Justice Department officials in Washington, D.C. Matthew Schneider, the U.S. Attorney for the Eastern District of Michigan, declined comment Tuesday about whether he had made such a recommendation.
“I can’t see (DOJ) contradicting a local U.S. attorney,” Henning said, because such a recommendation carries significant influence. “They are unlikely to torpedo it. They likely will sign off and help negotiate a resolution with Fiat Chrysler that can be announced in the next month to six weeks.”
Potential settlement discussions with federal authorities come as national contract talks between the UAW and Detroit’s three automakers are poised to start next month. They are expected to be the most contentious since FCA's precursor, Chrysler Group LLC, and GM emerged from federally induced bankruptcy a decade ago.
The federal prosecution of auto industry figures is two years old and has revealed a pattern of Fiat Chrysler officials funneling cash, $1,100 pairs of designer Christian Louboutin shoes and luxury vacations to UAW leaders to wring concessions favoring the automaker.
Marchionne, for example, gave an expensive Italian watch to UAW Vice President General Holiefield, now deceased, and failed to disclose the gift while being questioned by federal investigators, The Detroit News previously reported.
The reporting described a dramatic "gotcha" moment during a secretive July 2016 meeting between federal investigators and Marchionne, until last summer the legendary CEO of FCA. It ended with the auto executive exposed to the possibility of federal charges.
The auto executive's gift of a watch to a ranking union leader could bolster any criminal case against FCA, legal experts said. Flanked by his white-collar criminal defense lawyer, William Jeffress, at the U.S. Attorney's Office in Detroit, Marchionne was asked by investigators whether he had given UAW leaders valuable items.
Marchionne said no. Investigators then confronted Marchionne with evidence he had given Holiefield a custom-made Terra Cielo Mare watch in February 2010. The Italian watchmaker has produced custom-made, limited-edition timepieces with the Fiat logo emblazoned on the dial since at least 2006 — and in 2014, a model featuring the Fiat logo and a mustard-yellow dial retailed for $2,245.
Marchionne died July 25 in a Zurich hospital. His successor as CEO, Michael Manley, has focused in part on "tying up loose ends," as one source familiar with the situation said, and resolving disputes with the federal government during the past year.
In January, FCA agreed to pay roughly $800 million to settle lawsuits accusing the Italian-American automaker of equipping some of its diesel-powered pickups and Jeep SUVs with software designed to elude emissions tests. The agreement with the Justice Department, federal regulators, the state of California and affected diesel owners follows the landmark “Dieselgate” scandal that cost Volkswagen AG billions and produced criminal indictments of managers and executives.
Negotiations stemming from the labor conspiracy are focused on the duration of government oversight, financial penalties and the whether Fiat Chrysler executives will admit guilt, according to sources familiar with negotiations. A settlement also could spare Fiat Chrysler and executives from facing criminal prosecution so long as they abide by terms of the deal.
Under its so-called “deferred prosecution agreement” with federal prosecutors, GM agreed to federal oversight for three years starting in 2015 following a scandal involving faulty ignition switches that have been linked to almost 400 deaths and injuries. The automaker agreed to pay a $900 million fine in addition to federal oversight.
In 2017, Volkswagen AG pleaded guilty to charges of conspiracy to commit wire fraud and to violate the Clean Air Act, one year after the German automaker reached a $14.7 billion civil agreement with the Environmental Protection Agency. It also agreed to a $1.2 billion settlement with its American dealers.
VW also pleaded guilty in March 2017 to three criminal charges related to its decade-long conspiracy to evade U.S. emission standards. The company was fined a record-setting $2.8 billion and faced three years of probation.
A deferred prosecution agreement with Fiat Chrysler could involve a statement of facts outlining criminal violations committed by the company and its executives, Henning said. A deal also could entail government oversight lasting as long as five years.
“Fiat Chrysler would probably have to file a report with a judge as to what measures have been taken, what training employees have undertaken,” Henning said, adding that it's unlikely the Justice Department would ask a judge to appoint a federal monitor to oversee changes at Fiat Chrysler. “It’s really all about raising the ethics level inside the company.”
A potential settlement also could strengthen Fiat Chrysler's compliance with federal laws, Henning said: "This is something Fiat Chrysler can point to and say, 'we're going to be a stronger company and be more ethical.' That’s what everybody says."