Compliance

Acting with integrity, compliance and honesty is an essential prerequisite for the success of the Volkswagen Group. For this reason, compliance with national and international laws and regulations, internal rules and voluntary commitments is among our Company’s most important principles. We are striving to strengthen the trust of our customers, our business partners and other stakeholders in our Group by treating each other fairly. Compliant behavior is the basis for this and must be a matter of course for all Group employees. One of our Company’s main tasks is to further enhance awareness of this.

Commitment to compliance at the highest level

In September 2019, Herbert Diess, Chairman of the Board of Management of Volkswagen AG, wrote in the social network LinkedIn: “Ethics, integrity, and compliance are crucial to me and the entire Board of Management to our success. This is the foundation for our future business.”

Compliance organization

The Group Compliance Committee met regularly in the reporting year. It is a top-management level body that is chaired by the member of the Board of Management responsible for Integrity & Legal Affairs. The committee ensures that compliance and integrity standards are uniformly developed, applied and communicated across the divisions and brands.

The Group Chief Compliance Officer reports directly to the member of the Board of Management responsible for Integrity & Legal Affairs. In the reporting period, there was direct communication on compliance issues at meetings of the Board of Management, the Audit Committee of the Supervisory Board and the Works Council, particularly by the member of the Board of Management responsible for Integrity & Legal Affairs and the Group Chief Compliance Officer.

Central divisions within the Group are supported and advised by their own compliance contacts. Additional centers of competence are responsible for the overall direction of compliance work and develop compliance instruments and program components with which the companies can implement the compliance requirements themselves across the Group. During the reporting period, additional resources were set aside for these tasks.

The global compliance organization at the Volkswagen Group comprises divisional and regional compliance offices. These support and advise the compliance officers and managers of the respective Group and brand companies with an effective, risk-based, Group-wide compliance management system, helping them to conduct their business activities in accordance with the rules and to be consistent in adhering to relevant laws and internal regulations. They also help companies to identify, evaluate, manage and monitor potential compliance risks. Additional compliance resources were provided on a risk-oriented basis in the reporting year. Higher levels of the compliance organization are involved in the appointment of new compliance officers and conduct a standardized training process.

The heads of the centers of competence report to the Group Chief Compliance Officer on disciplinary and functional matters. The Divisional Compliance Officers and the Regional Compliance Officer China report generally to the Group Chief Compliance Officer on functional matters. Meetings and conferences ensure that those responsible for compliance at Group and brand level are connected and communicate regularly.

Compliance management system

Our compliance management system is aligned with national and international laws and standards. Its objective is to encourage, reinforce and ensure compliant behavior in the Company in a lasting manner. The focus of our compliance organization is on preventing corruption, breaches of trust and money laundering and thereby on reducing the risk of unlawful actions. In the reporting year, we also conducted an analysis of fraud prevention for all relevant risks at the second line of defense in the risk management and internal control system.

Where laws and regulations have been violated, our whistleblower system is a suitable tool for taking appropriate action. Members of management are obligated to report every indication of serious rule-breaking. Failure to do so is itself a serious infringement. The accessibility of the whistleblower system has been further improved with a 24-hour hotline.

We place value on communication and training seminars to permanently anchor compliance-related content among the workforce.

Compliance work in the Volkswagen Group is based on a systematic process of risk identification and reporting in accordance with the IDW standard AsS 980. We used 2019 to conduct a Group-wide compliance risk analysis. The reporting year also saw us begin the global roll-out of our new standardized, IT-based process for selecting business partners. This will be used to regularly review the integrity of existing and new business partners through a risk-based approach and will be conducted every one to six years, depending on the degree of risk exposure. The objective is to obtain transparency at Group level of the risk exposure of all Group companies included in the compliance scope.

However, we are also aware that even the best compliance management system can never entirely prevent the criminal actions of individuals.

Code of Conduct and guidelines

The Volkswagen Group’s Code of Conduct is established throughout the Group. It is the main tool for reinforcing awareness of good conduct among the workforce, providing assistance to employees and finding suitable contacts in cases of uncertainty. The framework is available to all employees on the intranet and also to third parties on the internet and is continually communicated within the Company via digital and print media and at events.

Employees at all levels of the hierarchy receive regular training on the Code of Conduct, and the Code is also a fixed part of our operational HR processes. New employees receive a copy of it as part of the recruitment process. A reference to the Code of Conduct and the obligation to comply with it are a fixed part of employment contracts. In the reporting year, the Code of Conduct formed part of the employees’ annual reviews and was thus taken into account when calculating their variable, performance-related remuneration. As of 2019, employees at senior management levels are required to undergo annual Code of Conduct certification process.

In addition to the Volkswagen Group Code of Conduct, Group Compliance prepares Group policies and guidelines on specific compliance issues, which are incorporated into the relevant rules of the brand and Group companies throughout the entire Group. In the reporting year, for example, uniform rules for dealing with gifts, avoiding corruption and conflicts of interest were set out in a Group policy for the first time. In addition, a revised version of the guidelines on whistleblowing reinforced the role of the Volkswagen whistleblower system as the central point of contact for cases of serious rule-breaking. Group policies on business partner due diligence, on prevention of money laundering and on mergers & acquisitions were also implemented.

There was a new guideline on “Governance and Integrity, Risk Management, Compliance and Legal Affairs” which describes the organization, structure and functions relating to the Compliance, Integrity, Risk Management and Legal departments. Employees have access to the compliance rules and regulations in particular via the compliance pages on the Company intranet.

The Code of Conduct for Business Partners was extensively revised in the reporting year and the new version was enacted throughout the Group. The Code of Conduct for Business Partners defines our minimum standards concerning the compliance matters described therein and is permanently available to third parties via the internet. Business partners can also take part in online training that covers the Code’s content.

Whistleblower system

The Volkswagen whistleblower system is the central point of contact for reporting potential cases of serious rule-breaking in the Volkswagen Group. It focuses on investigating serious infringements that could cause major damage to the Company’s reputation or financial interests or that involve major breaches of the Volkswagen Group’s ethical principles. Examples of matters generally involving serious rule-breaking include economic, corruption-related, tax and environmental offenses, breaches of human rights, infringements of antitrust and competition law, money laundering and terrorist financing, infringements of rules on product safety and approval, and serious data protection breaches.

The aim of the whistleblower system is to protect Volkswagen and its employees through the use of binding principles and a clearly governed process. The experience gained from reported violations of regulations helps us to improve compliance management and prevent similar incidents in the future. The whistleblower system is designed to provide maximum protection for whistleblowers and affected parties. An investigation is only initiated after the information received has undergone a thorough examination and the latter has identified concrete indications of rule-breaking. The presumption of innocence applies to the parties affected until rule-breaking has been proven. Strict confidentiality and secrecy apply throughout the investigation process. Reports are investigated fairly, swiftly and sensitively. Whistleblowers are also protected. Their statements are treated confidentially. If they wish, and provided the law allows, their identity is not disclosed. Discriminating against whistleblowers is a serious violation of the rules and is not tolerated. Appropriate sanctions are applied where misconduct is proven.

Information on misconduct by Volkswagen Group employees can be reported through a wide range of channels, including anonymously if preferred. Options for anonymous reporting include a specially protected online reporting channel, which allows users to communicate under an alias, and a 24-hour telephone hotline through which reports can be submitted in various languages. In addition to the staff in the Investigation Office, there are two external lawyers (ombudspersons) available for confidential discussions. The ombudspersons can receive reports and forward them to the Investigation Office.

The whistleblower system is coordinated by the Central Investigation Office in Wolfsburg. This office is also responsible for dealing with reports concerning Volkswagen AG and its subsidiaries. AUDI AG, Dr. Ing. h.c. F. Porsche AG and TRATON SE each operate their own investigation office that also covers their subsidiaries.

Group-wide, 3,174 reports (excluding China) were registered at the four Investigation Offices in 2019 (2018: 1,560). This shows that staff are familiar with the whistleblower system and the underlying processes. It is also proof that employees are motivated by a speak-up culture to take action against misconduct.

Communication, training and advice

We further expanded training and communication activities relating to compliance in the reporting year. Training on the Code of Conduct is mandatory for all employee groups and forms the basis for the understanding of compliance in the Group. It takes place in both face-to-face and online training sessions. The training is regularly repeated with new and expanded content and documented in employees’ training history.

In addition, Volkswagen introduced a mandatory anti-corruption training in the reporting year, which is also being rolled out Group-wide. For the first time, training and raising awareness on this issue is aimed not only at specific groups within the Company, but also at business partners from sales and procurement departments based on the level of risk.

Following the risk-based approach, compliance training – some of which is mandatory – continues to take place on topics including the prevention of money laundering. Compliance content is also communicated through personal development programs, in various dialog formats and at presentations and events, for example on the topic of anti-corruption measures and the whistleblower system.

Employees can also use special e-mail addresses to solicit advice on compliance issues. They can also contact advisory services within the compliance organization, such as the compliance Infopoint at Volkswagen.

Compliance key performance indicator

To measure the level of target achievement, we defined a strategic indicator for the major brands that manufacture passenger cars:

• Compliance, a culture of error management and behaving with integrity. This is based on an evaluation of the answers to three questions in the opinion survey relating to compliance with regulations and processes, dealing with risks and errors and behaving with integrity. In the case of negative deviations, the affected departments develop and implement measures. In the reporting year, the key performance indicator further improved on the previous good figure.

Strengthening compliance in company processes

The act implementing the Fourth EU Money Laundering Directive into German law presented new requirements for Volkswagen AG as a company that is bound by the Gesetz über das Aufspüren von Gewinnen aus schweren Straftaten (GWG – Law on Tracing Profits from Serious Criminal Offences). The Group policy adopted and published in this context by the Board of Management in 2018 defines the minimum standard to be implemented by all Group companies.

In 2018, we designed and developed a new IT tool for a risk-based business partner selection process at the Volkswagen Group. We began pilot testing the tool at the end of 2018. The Group has been gradually introducing this business partner selection process since 2019. A key objective of the new process is the creation of transparency within the Volkswagen Group to prevent Group companies from entering into business relationships with business partners that other Group companies have previously classified as not acting with integrity.

New business models are constantly being considered in the Volkswagen Group as part of the enhanced Group strategy TOGETHER 2025⁺. These business models focus particularly on digitalization, automation and electrification, but also on the development of and involvement in mobility concepts. The compliance organization helps the strategic business units to implement their forward-looking projects through individual risk assessments and recommendations based on these.

In addition, compliance will become more firmly embedded in mergers & acquisitions and real estate transactions.

Effectiveness review

Independent reviews by Group Internal Audit in the corporate units and the regular exchange of information with external bodies help ensure continuous improvement of the compliance management system. There are no indications that our current compliance management system was ineffective in 2019.