DaimlerChrysler AG (DCX) has agreed to pay $1.2 million to settle allegations that its Mercedes division failed to notify authorities about faulty air pollution controls in vehicles, the U.S.. Justice Department and Environmental Protection Agency said on Thursday.

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The EPA said Mercedes had failed to promptly notify it about defects in the air pollution controls installed on a number of models from 1998-2006 model years.

In response to the investigation, Mercedes began voluntary recalls for two of the defects and offered an extended warranty coverage on a third defect, at an estimated cost of about $59 million, the justice department and EPA said.

A call to a Mercedes spokeswoman was not immediately returned.

Under the terms of the deal, Mercedes will be required to improve its emissions defect investigation and reporting system, at an estimated cost of $1 million per year, according to the two agencies.

The vehicles involved in voluntary recalls and extended warranties have defective catalytic converters or defective air pumps, the two government agencies said.

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