The admission was made as part of the carmaker’s defence to the lawsuit brought by its shareholders who claim that they were misled.

In a statement VW outlined a chain of events from 2005, when it decided to start a major diesel campaign in the US, which has strict emissions limits for pollutants – these were about six times less than under the EU5 standard applicable in Europe at that time. It added that technicians and engineers were facing the challenge that any measure to reduce nitrogen oxides has a knock-on effect with regard to other parameters, such as CO2.

VW added: “In the ensuing period, in order to resolve this conflicting objective satisfactorily within the timeframe and budget of the EA189 project, according to the current state of knowledge, a group of persons – whose identity is still being determined – at levels below the Group's Management Board in the powertrain development division, decided to modify the engine management software. With this software modification, emissions values were generated in bench testing that differed substantially from those under real driving conditions.”

The irregularities were first uncovered in May 2014 when the Californian environmental agency California Air Resources Board (CARB) received indications of them from a study published by the International Council on Clean Transportation (ICCT).

According to this study, nitrogen oxide values for two Volkswagen diesel vehicles reportedly deviated significantly between bench testing and road operation than would be expected under normal circumstances.

On 23 May 2014, a memo about the ICCT study was prepared for Martin Winterkorn, then-CEO. VW said there is no documentation “whether and to which extent Mr. Winterkorn took notice of this memo”. In November that year, Mr Winterkorn received another memo that reported, amongst other things, on several then current product defect cases and referred to a cost framework of approx. €20m (£14.2bn) for the diesel issue in North America.

Mr Winterkorn and VW chairman Herbert Diess were also present at a meeting in July 2015 when the diesel issue was discussed. VW added: “Concrete details of this meeting have not yet been reconstructed. In particular, it is not clear whether the participants understood already at this point in time that the change in the software violated US environmental regulations. Mr Winterkorn asked for further clarification of the issue.”

It wasn’t until the end of August 2015 when “Volkswagen technicians gave a full explanation of the technical causes for the irregularities discovered regarding the emission of nitrogen oxides in the US to lawyers from the Volkswagen Legal Department as well as to the U.S. attorneys from Kirkland & Ellis”.

This led to the Management Board member's “realization that the modification of the engine management software constituted a prohibited defeat device under U.S. law. It was then decided to communicate this information transparently to CARB and EPA.”

In its statement, VW said: “After careful examination by internal and external legal experts, the Company confirms its belief that its Management Board duly fulfilled its disclosure obligation under German capital markets law.”

It added that it “considers the German shareholder lawsuits to be without merit, since any ad hoc disclosure obligation requires that the persons responsible for the fulfillment of this obligation obtain knowledge of facts relevant for the stock price and can assess the economic effects of those facts”.

Volkswagen added that as previously announced it will report preliminary results of the investigation in the second half of April.