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Takata to plead guilty, pay $1B in criminal penalties for airbag scheme; 3 Takata execs indicted

Tokyo-based Takata Corporation, one of the world’s largest suppliers of automotive safety-related equipment, agreed to plead guilty to wire fraud and pay a total of $1 billion in criminal penalties stemming from the company’s fraudulent conduct in relation to sales of defective airbag inflators. An indictment was also unsealed charging three Takata executives with wire fraud and conspiracy in relation to the same conduct.

According to the company’s admissions, in the late 1990s, Takata began developing airbag inflators that relied upon ammonium nitrate as their primary propellant. From at least in or around 2000, Takata knew that certain ammonium nitrate-based inflators were not performing to the specifications required by the auto manufacturers. Takata also knew that certain inflators had sustained failures, including ruptures, during testing.

Nevertheless, Takata induced its customers to purchase these airbag systems by submitting false and fraudulent reports and other information that concealed the true condition of the inflators. This fraudulent data made the performance of the company’s airbag inflators appear better than it actually was, including by omitting that, in some instances, inflators ruptured during testing.

Takata employees—including a number of key executives—routinely discussed the falsification of test reports being provided to Takata’s customers in email and in verbal communications. Even after the inflators began to experience repeated problems in the field—including ruptures causing injuries and deaths—Takata executives continued to withhold the true and accurate inflator test information and data from their customers.

Takata took no disciplinary actions against those involved in the falsification of test data until 2015, despite the fact that senior executives had been made aware of the fraudulent conduct years earlier.

Takata agreed to plead guilty to a one-count criminal information filed in the Eastern District of Michigan and assigned to US District Judge George Caram Steeh, charging the company with one count of wire fraud. Under the terms of the agreement, Takata will pay a total criminal penalty of $1 billion, including $975 million in restitution and a $25 million fine.

Two restitution funds will be established: a $125-million fund for individuals who have been physically injured by Takata’s airbags and who have not already reached a settlement with the company, and a $850 million fund for airbag recall and replacement costs incurred by auto manufacturers who were victims of Takata’s fraud scheme. A court-appointed special master will oversee administration of the restitution funds. Takata has also agreed to implement rigorous internal controls, retain a compliance monitor for a term of three years and cooperate fully with the department’s ongoing investigation, including its investigation of individuals.

The three Takata executives—Shinichi Tanaka, 59; Hideo Nakajima, 65; and Tsuneo Chikaraishi, 61, all Japanese citizens—were each charged in an indictment filed on Dec. 7, 2016, in the Eastern District of Michigan with one count of conspiracy to commit wire fraud and five counts of wire fraud for their alleged conduct in connection with the above-described fraud scheme.

The Department of Justice reached this resolution based on a number of factors, including Takata’s cooperation with the government’s investigation. However, the company did not receive more significant mitigation credit, either in the penalty or the form of resolution, because of the nature of the conduct to which the company is pleading guilty, including the approximate 15-year duration of the fraud, the pervasiveness of the scheme into the executive level of management and the potential risk the fraud posed to drivers and passengers.

An indictment is merely an allegation and all defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

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