WASHINGTON -- The U.S. Department of Justice has widened its probe into the Volkswagen emissions cheating scandal by tapping a law to combat banking fraud, The Wall Street Journal reported today.
Citing unnamed sources familiar with the VW investigation, the newspaper reported that the Justice Department has sent VW a subpoena under the Financial Institutions Reform, Recovery and Enforcement Act.
The civil statute was enacted in 1989 after the savings and loan crisis to combat bank fraud. With its long statute of limitations and lower burden of proof compared with many criminal fraud statutes, federal prosecutors have used the civil statute more recently to punish Wall Street banks in the aftermath of the 2009 financial crisis.
In 2013, prosecutors used the statute to secure a $13 billion penalty from JP Morgan to settle civil claims over the sale of toxic mortgage-backed securities.
Prosecutors are also looking at whether VW violated tax laws, the Journal said. Many buyers of VW’s “clean diesel” vehicles equipped with software designed to fool U.S. emissions tests received a $1,300 tax credit for alternative-fuel vehicles.
A Justice Department spokesman declined to comment on the ongoing investigation.
A VW of America spokeswoman also declined to comment on the Justice Department’s reported actions.
“We are committed to regaining the trust of our customers and dealers and will continue to cooperate with all relevant government agencies,” she said.
Potential fraud case
Peter Henning, a law professor at Wayne State University in Detroit, says prosecutors may be pursuing a potential fraud case because the penalties can be substantial, and it may help prod VW into a settlement.
“Banks make a number of auto loans, and even Volkswagen Credit may be considered a ‘financial institution’ under Firrea,” Henning said. “Any misstatements that harmed a bank or credit company could be mail or wire fraud that can be prosecuted under the statute, or be the subject of a civil Firrea recovery case.”
The Justice Department’s use of a statute to combat misbehavior in the financial sector could subject the company to a new source of government fines. VW theoretically faces up to $46 billion in penalties from the EPA for its alleged violations of the Clean Air Act, plus untold costs from hundreds of consumer lawsuits faced by the company. The automaker also faces a U.S. criminal probe, reports have said.
Meanwhile, VW faces a widening investigation in Germany, with prosecutors in Brunswick now investigating 17 VW employees, up from six previously, Reuters reported today. Brunswick is in the German state of Lower Saxony, whose government is VW’s second-largest shareholder.