Takata Fined $1 Billion For Airbag Scandal
The Law Of… challenging defective products
The US criminal case into the Takata airbag scandal has reached a conclusion as the Japanese car parts manufacturer has accepted a $1 billion fine and has pleaded guilty to a single criminal charge of wire fraud for falsifying test data that were provided to car makers.
Many reports claim that now the Takata has settled the criminal case that the company will look to move on from the scandal, with share prices rising and the possibility of a sale more likely after the settlement.
Rose Gibson – Partner in Serious Personal Injury at Simpson Millar – explains why it's still too soon to claim that the saga has come to an end, as millions of drivers are still at risk from the defective airbags, which it is now clear explode with too much force and can cause metal fragments to be projected around the inside of an affected car.
Settling DoJ Investigation
Reaching a settlement with the Department of Justice, Takata agreed to pay a total of $1 billion in fines for its fraudulent actions during the airbag scandal, which caused the largest automotive recall in history.
The $1 billion fine will be split down into a criminal fine of $25 million; a $125 million restitution fund for individuals that have – or will end up – suffering a personal injury because of faulty airbags; and a $850 million restitution fund for car manufacturers that received falsified test information or have purchased the defective parts from the company.
Admitting that test data was falsified, Takata as a company also pleaded guilty to a single charge of wire fraud. Three former Takata executives have also been indicted for fraud, however as they are no longer part of the company these charges will have less bearing on the company than the DoJ investigation into the company's actions during the saga.
Significantly, the settlement also requires an improvement of Takata's corporate compliance program with an independent monitor set to be appointed to ensure that the company complies with its legal and ethical obligations – this independent monitor will report directly to the DoJ for three years.
In a press release on the settlement, Shigehisa Takada, Chairman and CEO of Takata, said:
"Reaching this agreement is a major step towards resolving the airbag inflator issue and a key milestone in the ongoing process to secure investment in Takata."
"Takata deeply regrets the circumstances that have led to this situation and remains fully committed to being part of the solution. We have taken aggressive actions to address past reporting lapses and will continue to work closely with regulators and our automotive customers to address the ongoing recalls and implement new technologies that advance vehicle safety, prevent injuries and save lives.”
Ongoing Airbag Recall
Over 100 million Takata airbags have been recalled; however some consumers in the US have been turned away from dealerships as a lack of replacement parts means that some drivers have been told that their potentially fatal airbags could not yet be replaced.
It is estimated that less than 20% of the defective airbags have been replaced in the US, with some reports claiming that it would take at least three years for Takata and other airbag manufacturers to produce enough safe replacement parts to replace the current defective products.
As Rose explains, it is for these reasons that it is crucial that we do not treat the settlement of the US criminal investigation at the end of this saga:
"While it is positive that Takata has reached a settlement agreement with the DoJ, and crucially admitted and pleaded guilty to falsifying test data, we have to remember that the recall of defective airbags goes on."
"Any company that is looking to invest in Takata will have to go through extreme due diligence to ensure that they are aware of their responsibility to complete the recall, as well as setting aside the $975 million restoration funds for individuals and companies affected by the scandal - this portion of the $1 billion fine does not need to be paid immediately."
"Pleading guilty to wire fraud may have longer term implications as well, as the company have now, correctly, admitted liability for any future compensation claims that arise from these defective airbags."
"With some regulators claiming it could take until 2023 before all affected vehicles are fixed – which is a conservative estimate for the US alone – I foresee the $125 million personal injury fund running out quickly, so it is likely that further funds will have to be made available to settle any further personal injury claims beyond this figure."
"For the UK, this development means that owners of the suspected one million cars in the country featuring the defective airbag will be able to reference this admission of guilt should the worst happen and the faulty item causes a serious injury."
"Before they have the chance to cause serious harm, I implore any of the owners of the one million cars that were recalled in the UK to follow instructions from their manufacturer to have the problem rectified."