Takata Faces Inevitable U.S. Inquiry Into Airbags

Three senators have called on the Justice Department to investigate whether Takata lied in reports filed with the government and who inside the company may be responsible if any misleading information was provided.

Takata is not the first auto company to deal with the fallout from defective parts that were not addressed despite warning signs. Toyota paid $1.2 billion to settle a case involving misleading statements about safety issues in its vehicles, and General Motors is facing multiple investigations for ignoring faulty ignition switches that resulted in numerous deaths and injuries.

The Times reported that the United States attorney's office in Manhattan was already looking into Takata's handling of the airbag defect, a sure sign that the government will be aggressive in pursuing a criminal investigation. That is the same office involved in the Toyota case and the G.M. investigation, and I expect we will soon hear about grand jury subpoenas issued to Takata and the automakers that used its airbags.

The Takata investigation may develop differently from the inquiries involving Toyota and G.M. In Toyota's case, the Justice Department entered into a deferred prosecution agreement based on a wire-fraud charge that accused the company of misleading consumers and vehicle owners about the steps it had taken to ensure the safety of its cars. The focus was on statements made after problems like sudden acceleration came to light.

The G.M. investigation is looking at how the company failed to spot continuing problems with the ignition switches in certain models. An internal investigation conducted by Anton R. Valukas found that a change to the switch was kept secret by retaining the part identification number, making it harder to track down the reason for crashes. He also examined how in-house lawyers overlooked a pattern of accidents. The likely focus is on whether the company properly reported potential repair and legal costs from the defect in filings with the Securities and Exchange Commission, because failing to act caused the problem, not providing false information.

There was a wealth of exchanges between Takata and the National Highway Traffic Safety Administration about problems with its airbags that will be the starting point for the Justice Department's investigation.

Honda recalled a small number of vehicles in 2008 because of problems with the Takata airbags. The safety agency opened an inquiry on the timing of the recall but closed it six months later because of "insufficient information" about whether the recall was made in a timely manner. The Times reported that Takata first looked into a possible defect in the airbags four years earlier and that company executives instructed employees to delete information about tests on them. That raises questions about whether information provided to the government related to the 2008 recall was accurate. Takata has said that reports about earlier testing of the airbags are "fundamentally inaccurate."

In 2010, Takata sent a letter to the safety agency, providing what it called a "comprehensive response" about issues related to inflaters in its airbags that were the subject of Honda's 2008 recall and another one in 2009. Another letter to the agency in June 2014 discussed an investigation into the airbags in which the company said that "currently available information does not indicate that any Takata inflaters - other than those in vehicles that were previously recalled - contain a safety defect." That type of broad statement is sure to draw the attention of prosecutors to determine whether it was either false or misleading, especially if the company shut down an earlier investigation before it could be concluded.

The federal false-statement statute, 18 U.S.C. 1001, prohibits making "any materially false, fictitious, or fraudulent statement or representation" related to a matter within the jurisdiction of a federal agency. Courts have found that the statute also covers statements made to a third party that the person knows will be provided to the federal government. Thus, statements made by Takata directly to the safety agency or provided by an automaker based on information supplied by the company can be the basis for a criminal charge if it was false or misleading.

Proving a false-statement charge requires showing that the defendant knew that it was false or misleading so that accidental or unknowing misstatements are not subject to prosecution. For a corporation, the collective knowledge of all its employees can be used to prove the organization's intent. So even if no one individual had the requisite knowledge about defects in the airbags, the sum of the information available to Takata's employees can be used to prove a violation by the company.

The statute of limitations for a violation of Section 1001 is five years, so only those statements made since 2009 can be the basis of a charge under the statute. But prosecutors have a way around that by pursuing a conspiracy charge, which permits conduct outside the five-year limitation to be used as long as one act related to the conspiracy took place in the last five years.

The intracorporate conspiracy doctrine usually precludes prosecuting an illegal agreement when the only participants are the company and its own employees. But that limitation does not apply to federal criminal cases, so a conspiracy charge can be filed against a company based on an agreement among its employees to make false statements. Indeed, the government need not convict any employees for conspiring to violate the law to hold the company liable as long as a jury finds that there was an agreement among individuals whose conduct can be attributed to the organization.

An interesting question will be whether Takata conducts the type of internal investigation that G.M. did. The Justice Department, in deciding whether to file charges, puts a premium on the degree of cooperation shown by a company during an investigation, including how thoroughly it sought to identify potential wrongdoing and whether it promptly disclosed any violations to federal prosecutors.

A recent shift in assessing corporate cooperation focuses on whether a company is willing to identify individual employees involved in misconduct so that charges can be pursued against them. In September, Marshall L. Miller, the principal deputy assistant attorney general for the Justice Department's criminal division, said that "if you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation."

As the investigation unfolds, Takata will have to decide whether it will take an approach similar to G.M. by commissioning an internal investigation and releasing a report about whether there was any wrongdoing inside the company. That may be the key to determining whether it will face criminal charges and how much it will have to pay if the Justice Department obtains evidence of violations.