pvg is not calling them dumb. He is saying that they lack an understanding of the laws, regulations, and regulatory environments of different countries. And faced with this lack of understanding relied on their company and boss' judgement.

I don't consider myself an idiot but there are many times I read about actions taken by companies and go "S&*t that's legal!?!?!?". Many times unscrupulous and gray areas in the law aren't technically illegal. In addition the the Milgram experiments shows that even very smart people feel enormous pressure when when confronted with an authority figure. These two effects and I can imagine how hard it would be when the V.P. comes in and has a talk with you about how he had talked with legal counsel and they had looked over the regulatory rules and decided this was allowed, and other automotive companies were doing it.

The engineer could easily rationalize this away thinking "surely VW wouldn't do something illegal. They could get in so much trouble. I imagine I just misunderstood the laws."