Just fine them for transgressions. But like, seriously fine them. VW is worth ~350 billion Euro, had 200 billion Euro of revenue and 10 billion Euro of profits (2014 data). Fine them those 10 billion EUR. And if they squeal, fine them 20 more. That's more than enough to erase all the damage they did, account for unfair market advantage and do some serious progress on environmental issues.

If it doesn't hurt, they won't learn.