Prosecutors turned up the heat on Volkswagen late Tuesday as the Department of Justice invoked a law that came out of the banking scandals of the 1980s. The Department of Justice issued a subpoena under the Financial Institutions Reform, Recovery and Enforcement Act. The new direction, said the Wall Street Journal, signals a widening of the actions against the automaker.
Speculating on the action, Peter Henning, a law professor at Wayne State University in Detroit, said it is entirely possible prosecutors are now looking at a potential fraud case because the penalties racked up can be quite significant. That factor alone, he indicated, may help push VW into a settlement.
“Banks make a number of auto loans, and even Volkswagen Credit may be considered a ‘financial institution’,” 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 recovery case.”
This strategy could subject Volkswagen to a new source of government fines. Until this subpoena, the automaker faced up to $46 billion in penalties under the Clean Air Act, said Automotive News Tuesday. Also, the carmaker is facing hundreds of consumer lawsuits with their enormous costs. And, VW is also facing a U.S. criminal probe.
Tuesday’s subpoena could indicate that prosecutors have decided to use the civil recovery act as a lever to move Volkswagen to a settlement. Prosecutors selected the financial recovery act because:
- It has a longer statute of limitations
- The legal thresholds are lower than other statutes
Prosecutors have used the recovery law to punish Wall Street banks in the aftermath of the 2009 meltdown. And, the Justice Department used the recovery act to gain a $13 billion settlement with J.P. Morgan that settled claims over toxic mortgage-backed securities.
In another track, prosecutors are reportedly looking at whether VW committed tax fraud. Many of the so-called clean diesels that fall under Dieselgate – vehicles that have emissions cheating software installed – received a $1,300 tax credit designed for alternative-fuel vehicles.
Spokesmen for the Justice Department and Volkswagen declined comment on the investigations. VW also said it is “committed to regaining the trust of our customers and dealers and will continue to cooperate with all relevant government agencies.”
In other VW-related news:
- German prosecutors indicated the number of VW employees under investigation is now 17 from six.
- Matthias Mueller, VW chief, told workers at a Tuesday meeting Dieselgate will inflict heavy financial damage.
- The automaker’s labor chief told workers at a meeting that big U.S. fines could mean jobs.
- VW is working to convince workers that a restructuring is needed.
- VW lawyers claim the automaker delayed announcing the emissions cheating in hopes they might achieve a deal.