Justice Dept. Announces Criminal Charge Against Toyota, Deferred Prosecution Agreement

WASHINGTON — U.S. Attorney General Eric Holder, U.S. Secretary of Transportation Anthony Foxx, U.S. Attorney for the Southern District of New York Preet Bharara, Inspector General of the U.S. Department of Transportation (DOT) Calvin L. Scovel III, National Highway Traffic Safety Administration (NHTSA) Acting Administrator David Friedman, and FBI Deputy Assistant Director Joe Campbell announced a criminal wire fraud charge against Toyota Motor Corporation on March 19.

The charge is that Toyota, headquartered in Toyota City, Japan, defrauded consumers in the fall of 2009 and early 2010 by issuing misleading statements about safety issues in Toyota and Lexus vehicles.

The Department of Justice (DOJ) announced a deferred prosecution agreement with Toyota under which the company admits that it misled U.S. consumers by concealing and making deceptive statements about two safety issues affecting its vehicles, each of which caused a type of unintended acceleration.

The agreement, which is subject to judicial review, requires Toyota to pay a $1.2 billion financial penalty – the largest penalty of its kind ever imposed on an automotive company — and imposes on Toyota an independent monitor to review and assess policies, practices and procedures relating to its safety-related public statements and reporting obligations.

Toyota agrees to pay the penalty under a Final Order of Forfeiture in a parallel civil action also filed March 19 in the Southern District of New York.

The criminal charge is contained in an information alleging one count of wire fraud. If Toyota abides by all of the terms of the agreement, the government will defer prosecution on the information for three years and then seek to dismiss the charge.

“Rather than promptly disclosing and correcting safety issues about which they were aware, Toyota made misleading public statements to consumers and gave inaccurate facts to members of Congress,” said Holder. “When car owners get behind the wheel, they have a right to expect that their vehicle is safe. If any part of the automobile turns out to have safety issues, the car company has a duty to be up-front about them, to fix them quickly, and to immediately tell the truth about the problem and its scope. Toyota violated that basic compact.

“Other car companies should not repeat Toyota’s mistake: a recall may damage a company’s reputation, but deceiving your customers makes that damage far more lasting.”

“Safety is our top priority,” said Foxx.  “Throughout this recall process, NHTSA investigators worked tirelessly to make sure that Toyota recalled vehicles with defects causing unintended acceleration, and to determine when they learned of it, and as we learned today, they succeeded in this effort in spite of extraordinary challenges. Today’s penalties follow NHTSA’s own record civil penalties of more than $66 million – together, they send a powerful message to all manufacturers to follow our recall requirements or they will face serious consequences.”

“Toyota stands charged with a criminal offense because it cared more about savings than safety and more about its own brand and bottom line than the truth,” said Bharara. “In its zeal to stanch bad publicity in 2009 and 2010, Toyota misled regulators, misled customers, and even misstated the facts to Congress. The tens of millions of drivers in America have an absolute right to expect that the companies manufacturing their cars are not lying about serious safety issues; are not slow-walking safety fixes; and are not playing games with their lives.

“Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

“To the families and friends of those who died or were injured as a result of these incidents, I offer my deepest sympathies for your loss and my highest admiration for the strength you demonstrate every day,” said Scovel. “As is true for Secretary Foxx and DOT, safety is and will remain the highest priority of my office. The OIG is committed to working with our law enforcement and prosecutorial partners in pursuing those who commit criminal violations of the Department of Transportation’s or related laws.

“The efforts of this dedicated multi-agency team and the agreement reached with Toyota must serve as a clarion call to all auto manufacturers of the need to always be as vigilant and forthcoming as possible to keep the public safe.”

To see the Statement of Facts filed in federal court, click here.

Toyota’s Statement

Today, Toyota announced that it reached an agreement with the U.S. Attorney’s Office for the Southern District of New York to resolve its investigation initiated in February 2010 into the communications and decision-making processes related to the company’s 2009-2010 recalls to address potential “sticking” accelerator pedals and floor mat entrapment. As part of the agreement, Toyota will make a payment totaling $1.2 billion.

“At the time of these recalls, we took full responsibility for any concerns our actions may have caused customers, and we rededicated ourselves to earning their trust,” said Christopher P. Reynolds, chief legal officer, Toyota Motor North America. “In the more than four years since these recalls, we have gone back to basics at Toyota to put our customers first.”

Reynolds continued: “We have made fundamental changes across our global operations to become a more responsive company – listening better to our customers’ needs and proactively taking action to serve them.

“Specifically, we have taken a number of steps that have enabled us to enhance quality control, respond more quickly to customer concerns, strengthen regional autonomy and speed decision-making. And, we’re committed to continued improvement in everything we do to keep building trust in our company, our people and our products. Importantly, Toyota addressed the sticky pedal and floor mat entrapment issues with effective and durable solutions, and we stand behind the safety and quality of our vehicles.

“Entering this agreement, while difficult, is a major step toward putting this unfortunate chapter behind us. We remain extremely grateful to our customers who have continued to stand by Toyota. Moving forward, they can be confident that we continue to take our responsibilities to them seriously,” Reynolds concluded.

Among the substantive actions the company has voluntarily taken since the recalls are:

• Launching rapid-response teams to investigate customer concerns quickly;

• Committing $50 million in 2011 to launch Toyota’s Collaborative Safety Research Center in Ann Arbor, Michigan to partner with more than 16 universities and institutions across North America on safety advances that will be shared to benefit the entire auto industry and society;

• Expanding its network of field quality offices to improve customer responsiveness;

• Enhancing regional autonomy, including naming the first American CEO of Toyota’s North American Region as well as chief quality officers for North America and other principal regions – all of whom have direct lines to President Akio Toyoda;

• Improving its quality control process; and

• Extending the new vehicle development cycle by four weeks to help ensure reliability and safety.

Under the agreement, the government agrees to defer prosecution and then dismiss its case, as long as Toyota makes the required monetary payment, abides by the terms of the agreement and continues to cooperate with the government. The agreement also provides for an independent monitor to review policies and procedures relating to Toyota’s safety communications process, its process for internally sharing vehicle accident information and its process for preparing and sharing certain technical reports.

Toyota will record $1.2 billion in after-tax charges against earnings in the fiscal year ending March 31, 2014 for costs relating to the above agreement.