CONTENTS
- 1. Company M, Sanctioned on Suspicion of Manipulating Automobile Emissions
- - What Is the Key Issue in the Automobile Emissions Manipulation Case?
- 2. Automobile Emissions Manipulation, the First-Instance Judgment
- 3. Automobile Emissions Manipulation, the Appellate Judgment
- - Implications of the Company M Case
- 4. Automobile Emissions, Daeryun's Strategy
1. Company M, Sanctioned on Suspicion of Manipulating Automobile Emissions
This is the case of Company M, which was assessed a penalty surcharge on suspicion of unlawfully manipulating automobile emissions.
Company M was suspected of violating emissions certification requirements with respect to a total of 32,615 vehicles across 12 diesel models that it imported and sold in Korea from 2012 to 2018, by installing software that degraded the performance of the diesel particulate filter (DPF) so as to reduce the consumption of urea solution or lower the operating rate of the exhaust gas recirculation device during actual driving.
Accordingly, in May 2020, the Ministry of Environment imposed a penalty surcharge of KRW 64.2 billion on Company M.
What Is the Key Issue in the Automobile Emissions Manipulation Case?
The key issue in this case is that Company M, although it had configured the selective catalytic reduction (SCR) device and the exhaust gas recirculation (EGR) device, which are core components of the emissions reduction system, to operate in a restricted manner under certain driving conditions, did not disclose this fact to the Ministry of Environment and imported and sold the vehicles, thereby wrongfully obtaining emissions certification.
The SCR and EGR are devices that reduce nitrogen oxide emissions, but the nitrogen oxides emitted during actual road driving were found to be approximately eight times higher than the indoor certification standard.
2. Automobile Emissions Manipulation, the First-Instance Judgment
At the first instance on the automobile emissions manipulation charge, Company M argued that the SCR and the EGR are in a mutually complementary relationship and that, even if the EGR control function were partially restricted, there would be no significant effect on overall nitrogen oxide emissions, so it did not constitute a "defeat device."
The Seoul Administrative Court accepted part of this argument and determined that the EGR control function did not, on its own, markedly degrade reduction performance and that, considering that the overall reduction effect was maintained, the function did not constitute a "defeat device."
Accordingly, part of the penalty surcharge was found to be unlawful, and a judgment reducing the amount in part was rendered.
3. Automobile Emissions Manipulation, the Appellate Judgment
Company M, charged with automobile emissions manipulation, appealed, arguing that the penalty surcharge was excessive and that the control function was merely a reasonable setting for engine protection and vehicle safety, not a manipulation.
The Seoul High Court, however, focused on the fact that the EGR control function installed in the 12 diesel models that Company M imported and sold in Korea degraded the emissions reduction function under ordinary driving conditions, and determined that this function also constituted a "defeat device."
This is conduct that the Ministry of Environment's emissions certification notice clearly prohibits.
The court explained that even if the amount of emissions might appear to have been relatively reduced because other control devices were operating, the EGR control function must be regarded as a defeat device if it is itself configured to degrade reduction performance.
Accordingly, the court held that Company M's conduct in deliberately concealing the setting, wrongfully obtaining emissions certification, and then importing and selling the vehicles was a clear violation of the law, and that both the certification revocation disposition issued by the National Institute of Environmental Research and the penalty surcharge of approximately KRW 64.2 billion imposed by the Minister of Environment were lawful.
The court further determined that, because the Ministry of Environment had calculated the penalty surcharge based on a rate of 1.5 to 5 percent of sales for each model and the maximum ceilings prescribed by the respective statutes (KRW 1 billion, KRW 10 billion, and KRW 50 billion) under the former and amended Clean Air Conservation Act and its subordinate regulations, the measure fell within the scope of discretionary power even though the total amount of the penalty surcharge was large, and there was no unlawful element, such as a violation of the principle against retroactive legislation.
Implications of the Company M Case
The Seoul High Court assessed this judgment as a case that presents standards applicable to the administrative practice of the automobile emissions certification system and stated that it may be referred to as an important precedent in similar future cases in which wrongful certification or sales inconsistent with certification are at issue.
The Company M case carries significant meaning in that it is a judgment that gives concrete form to the principles of legal control over the emissions certification system and clearly sets out standards for sanctioning technical manipulation by companies.
By determining that the Ministry of Environment's procedures for revoking emissions certification and imposing the penalty surcharge were all lawful, the court left an important precedent that provides standards for assessing the legitimacy of administrative dispositions in similar matters, such as "wrongful certification" or "sales inconsistent with certification," going forward.
This judgment also made clear that, for automobile manufacturers, conduct that technically circumvents environmental regulation may be subject to serious legal sanctions, and it is regarded as a representative case showing that, from an ESG management perspective as well, a company may face substantial legal and financial risk if it neglects the "environmental" factor.
4. Automobile Emissions, Daeryun's Strategy
This past May, in Germany, four former executives of Company W, an automobile company that manipulated emissions, were found guilty.
The engine development head, who had stood trial in 2015 on charges related to the so-called "Dieselgate" fraud, received four years and six months' imprisonment, and the head of the powertrain (drive system) received two years and seven months' imprisonment.
In addition, the criminal trial of an executive of Company W's Korean subsidiary, who was indicted on the same charges more than eight years ago, is expected to resume this coming August.
As this shows, where a company is involved in emissions manipulation, beyond having penalty surcharges and administrative fines imposed on the company, its executives and employees may well bear criminal responsibility on charges of violating the Clean Air Conservation Act.
Regulation relating to automobile emissions is composed of a multilayered and complex statutory framework, including the Clean Air Conservation Act and Ministry of Environment notices, and matters such as certification revocation and the imposition of penalty surcharges fall within a demanding area where administrative law, environmental law, and technical regulations intersect.
In a case such as this one in particular, the legal and technical issues are addressed with precision, so if a company responds on its own, a misunderstanding of the legal principles may lead to critical consequences.
At Daeryun Law Firm LLP, 🔗attorneys of the Corporate Group provide legal risk management throughout the entire process, from advance prevention to subsequent response, including responding to investigations and hearings, advising on the method of calculating penalty surcharges, and developing administrative litigation strategy.
