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Takata agrees to plead guilty and pay $1 billion for hiding air bag defect

Takata Corp. has agreed to plead guilty to a single criminal charge and will pay $1 billion in fines and restitution for a years-long scheme to conceal a deadly defect in its automotive air bag inflators.

The U.S. attorney’s office in Detroit announced the deal Friday, hours after it unsealed a six-count grand jury indictment against three former Takata executives who are accused of executing the scheme by falsifying and altering test reports that showed the inflators could rupture.

Takata inflators can explode with too much force, spewing shrapnel into drivers and passengers. At least 11 people have been killed in the U.S. and 16 worldwide because of the defect. More than 180 others have been injured.

The faulty inflators have touched off the largest automotive recall in U.S. history, involving 42 million vehicles and 69 million inflators.

Under the deal, Takata will pay a $25-million criminal fine, $125 million to individuals injured by the air bags and $850 million to automakers that purchased the inflators.

A federal judge will be asked to appoint attorney Kenneth Feinberg to distribute restitution payments.

Payments to individuals must be made soon. Money due to automakers must be paid within five days of Takata’s anticipated sale or merger. Takata is expected to be sold to another auto supplier or investor sometime this year.

“Automotive suppliers who sell products that are supposed to protect consumers from injury or death must put safety ahead of profits,” said Barbara McQuade, the U.S. attorney in Detroit, whose office worked on a two-year investigation into the company. “If they choose instead to engage in fraud, we will hold accountable the individuals and business entities who are responsible.”

The Justice Department was criticized for not charging any individuals in earlier high-profile cases against automakers General Motors and Toyota. Now it has done so twice in one week. Prosecutors disclosed the indictment of six Volkswagen executives Wednesday when they announced a settlement of a criminal investigation into the German car company’s emissions-cheating scheme.

On Friday, prosecutors unsealed a Detroit federal grand jury indictment of three former Takata executives, Shinichi Tanaka, Hideo Nakajima and Tsuneo Chikaraishi. All were suspended by the company last year. Takata, based in Japan, has its U.S. headquarters in the Detroit suburb of Auburn Hills, Mich.

According to an indictment, as early as 2000, the trio falsified and altered reports to hide from automakers tests that showed the inflators could rupture or otherwise fail to meet specifications. They were charged with six counts of conspiracy and wire fraud. Takata was charged separately with one count of wire fraud. All three worked in Japan and at Takata’s U.S. operations.

“Defendants commonly referred to the removal or alteration of unfavorable test data that was to be provided to Takata customers as ‘XX-ing’ the data,” the indictment says. In June 2005, Nakajima said in an email that “they had no choice but to manipulate test data, and that they needed to ‘cross the bridge together.’ ”

Tanaka served as executive vice president of inflator global operations, Nakajima was director of engineering in the automotive systems laboratory and Chikaraishi was chief of Japan-Asia inflator operations, according to prosecutors.

All three are now in Japan, and McQuade said her office will work with authorities there to extradite them to the U.S. for trial. “Extradition is not automatic. It is discretionary with Japan,” she said. But she added that her office has had success in extraditing Japanese executives in automotive parts price-fixing cases.

As of 2015, Takata was the second-largest supplier of air bags in the world, accounting for 20% of the air bags sold.

The government said Takata had minimal internal controls and failed to notice its executives’ misconduct for years. It alleged that Takata falsified test data to deceive automakers that used its inflators in their vehicles. Once senior Takata executives learned that employees had falsified air bag reports, in 2009, they failed to take disciplinary action against those employees until 2015.

McQuade said Takata wanted to profit on air bags “knowing that they were creating a risk for the end user, soccer moms like me who drives around in my Ford Edge with my kids, who at any moment could get involved in a fender-bender and send a metal projectile into my face.”

“The risk that they allowed to happen is really reprehensible,” she said.

Unlike most other air bag makers, Takata’s inflators use explosive ammonium nitrate to fill air bags in a crash. But the chemical can deteriorate over time and burn too fast, blowing apart a metal canister.

Honda Motor Co., Toyota Motor Corp. and Fiat Chrysler are among the biggest customers for Takata inflators. In all, 17 automakers are affected by the recalls.

Takata has agreed to recall all original equipment inflators that lack a chemical drying agent in phases by the end of 2018. So far, the recall affects vehicles going back to the 2000 model year.

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UPDATES:

2:10 p.m.: This article was updated with comments from U.S. Atty. Barbara McQuade and additional details.

10:45 a.m.: This article was updated with news of the Takata Corp. also being indicted and agreeing to plead guilty.

This article was originally published at 9:05 a.m.

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