Takata to plead guilty, pay $1 bln U.S. penalty over air bag defect

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By Paul Lienert and David Shepardson | DETROIT/WASHINGTON

DETROIT/WASHINGTON Japan’s Takata Corp on Friday agreed to plead guilty to criminal wrongdoing and to
pay $1 billion to resolve a U.S. Justice Department
investigation into ruptures of its air bag inflators linked to
at least 16 deaths worldwide.

The deal was announced hours after prosecutors in Detroit
charged three former senior Takata executives with falsifying
test results to conceal the inflator defect, which triggered the
world’s biggest automotive safety recall.

Takata will pay a $25 million fine, $125 million in a victim
compensation fund, including for future incidents, and $850
million to compensate automakers for massive recall costs, the
Justice Department said. The auto parts supplier will be
required to make significant reforms and be on probation and
under the oversight of an independent monitor for three years.

The company’s shares rose 16.5 percent in trading in Japan
on news of the anticipated settlement, in which it agreed to
plead guilty to a single felony count of wire fraud.

The settlement, which must still be approved by a federal
judge in Detroit, could help Takata win financial backing from
an investor to potentially restructure and pay for massive
liabilities from the world’s biggest automotive safety recall.

“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,” Shigehisa Takada,
chairman and chief executive of Takata, said in a statement.

He added that the company “deeply regrets the circumstances
that have led to this situation and remains fully committed to
being part of the solution.”

Starting in 2000, Takata submitted false test reports to
automakers to induce them to buy faulty air bag inflators,
according to the Justice Department. Takata made more than $1
billion on the sale of the inflators and Takata executives
fabricated test information about their performance, the
department said in a statement.

A federal grand jury separately indicted three longtime
Takata executives, all Japanese citizens, after a more than
two-year U.S. criminal probe.

Shinichi Tanaka, Hideo Nakajima, and Tsuneo Chikaraishi were
indicted on wire fraud and conspiracy charges for allegedly
convincing automakers while at the supplier to buy “faulty,
inferior, non-performing, non-compliant or dangerous inflators”
through false reports.”

The Justice Department said the three were suspended in 2015
and not currently working for Takata. The six-count indictment,
unsealed on Friday, said they knew around 2000 that the
inflators were not performing to automakers specifications and
were failing during testing, but they provided false test
reports to automakers.

The inflators can explode with excessive force, launching
metal shrapnel at passengers in cars and trucks. Many of those
killed were involved in low-speed crashes that they otherwise
may have survived. To date, 11 deaths and 184 injuries have been
linked to the inflators in the United States.

“They falsified and manipulated data because they wanted to
make profits on their air bags,” U.S. Attorney Barbara McQuade
told a news conference in Detroit.

McQuade, a self-described “soccer mom,” said Takata had
knowingly exposed her to the risk that a minor car accident
would “send a metal projectile into my face.”

Takata has 30 days to pay the $150 million for victim
compensation and the criminal fine and then up to a year to pay
the remaining $850 million, or within five days of securing a
financial backer. Reuters reported in November that Takata may
file for bankruptcy as part of a restructuring.

In recent years, the Justice Department has had an
unprecedented number of criminal investigations into wrongdoing
by automakers and suppliers, reaching major settlements with
Toyota Motor Corp, Volkswagen AG, General
Motors Co among others.

The Justice Department said it had recommended together with Takata that Ken Feinberg, a compensation expert, oversee the
automaker and victim compensation funds.

The recalls have affected 19 automakers to date.

Regulators have said recalls would eventually affect about
42 million U.S. vehicles with nearly 70 million Takata air bag
inflators, making it largest U.S. auto safety campaign ever.

Regulators expect it will take at least another three years
to begin all of the recalls; just 12.5 million inflators have
been repaired to date.

In 2015, Takata admitted in a separate $70 million
settlement with U.S. auto safety regulators that it was aware of
a defect in its air bag inflators but did not issue a timely
recall.

The settlement announced Friday will only provide a fraction
of the money for automakers who have been forced to recall
millions of vehicles with the defective inflators. All but one
of the 11 U.S. deaths have taken place in Honda Motor Co vehicles. The Japanese automaker and Takata have
settled nearly all lawsuits filed in connection with fatal
crashes.



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