From 2009 to 2015, in violation of U.S. environmental regulations, Volkswagen sold diesel vehicles equipped with software designed to allow vehicles to pass emissions tests without meeting U.S. emissions regulations.
In the fourth quarter of 2016, the Department of Justice, along with a number of independent agencies and state governments, secured a $14.95 billion (at a quarterly rate) settlement with Volkswagen Group of America Inc. for their violations of environmental regulations. Settlement proceeds are earmarked to buy back or fix 580,000 affected cars, to forgive car loans, to mitigate environmental damage, and to fund emission technology research. The effects of the settlement were reflected in the NIPAs via the three components of the settlement: payments made to the federal government, to state governments, and to consumers.
The estimate for government current transfer receipts from business in the fourth quarter of 2016 included a $4.95 billion ($19.8 billion at an annual rate) settlement between Volkswagen Group of America Inc. and the federal and state governments. The settlement included fines for the violation of environmental laws and the funds will be used for environmental mitigation and for research in zero emissions technology. This settlement was recorded in the NIPAs in the fourth quarter as a current business transfer payment to government.
The consumer compensation part of this settlement was about $10.0 billion at a quarterly rate ($40.1 billion at an annual rate) and was recorded as a capital transfer from business to persons. Because Volkswagen Group of America Inc. is receiving cars in return for their payments, there is a smaller, offsetting capital transfer from persons to business. Based on BEA estimates of automobile units in stock and National Automobile Dealers Association data on trade-in prices, the value of the cars that will be returned is estimated to be $21.4 billion, with the resulting net value of these capital transactions equal to $18.7 billion.
The NIPA estimate of corporate profits also recognized the large current transfer expenses that Volkswagen Group of America Inc. accrued in the fourth quarter related to this settlement. U.S. corporate profits were reduced. However, they were offset by the increases in current business transfer payments resulting from this settlement. Gross domestic income was unaffected by these legal settlements.
Business current transfer payments to governments is shown in NIPA table 3.1, line 16. Quarterly estimates of the net capital transfers paid by business are shown in underlying NIPA table 5.11U, line 6. Quarterly estimates of corporate profits by industry are presented in NIPA Table 6.16D.
In the first quarter of 2017, Volkswagen AG (located in Germany) agreed to plead guilty to three criminal felony counts and to pay $4.3 billion ($17.2 billion at an annual rate) in criminal penalties and civil resolutions. These penalties and resolutions were recorded in the NIPAs as current transfers from rest of the world to the U.S. federal government. U.S. corporate profits were not affected by this settlement.
Business current transfer payments to governments from rest of the world is shown in NIPA table 3.1, line 18.