US consumers, states and the federal government are all taking shots at Volkswagen. The automaker now faces scrutiny, and potentially hefty fines, under a bank fraud law.
Volkswagen is taking it from all sides in the United States.
Hundreds of class-action lawsuits have been filed against the German automaker for selling vehicles that violate US emissions standards. The attorneys general of New Jersey, New Mexico, Texas and West Virginia have also sued, with more states likely to follow.
The US Justice Department has reportedly opened a new front against VW and issued subpoenas under a statute that targets bank fraud, according to the "Wall Street Journal" and Reuters.
The decision to investigate Volkswagen under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) comes two months after the Justice Department filed a civil suit against the automaker for cheating emissions tests.
Volkswagen already faces up to $48 billion (42 billion euros) in penalties for violating the Clean Air Act, according to an analysis by Reuters.
The nature of the US legal system
"It is the nature of the federal system in the United States, and its somewhat fragmented number of enforcers, that people can come out of the woodwork and bring actions and the numbers keep going up," John Coffee, a law professor at Columbia University, told DW.
As Volkswagen's legal woes snowball, the automaker's boss in North America, Michael Horn, has stepped down. The reasons for Horn's resignation are still unclear.
In an official statement, Volkswagen said Horn's departure was "mutually agreed upon." Citing unnamed sources, the daily newspaper "Die Welt" reported that he jumped ship.
Lower burden of proof
According to the "Wall Street Journal," the Justice Department is now investigating whether lenders suffered damages from financing Volkswagen vehicles at an inflated price. Car buyers paid a premium for "clean diesel" vehicles, which in reality emitted pollutants up to 40 times the legal limit.
Samuel Buell, a law professor at Duke University, said the Justice Department could file another civil claim, this time alleging consumer fraud.
"The financial penalties that are provided for under FIRREA are very extensive," Buell said.
Prosecuting civil cases under FIRREA is also easier because there's a lower burden of proof compared to criminal cases. The Justice Department doesn't have to prove its case "beyond a reasonable doubt." It only has to show that allegations are "more likely than not" true.
FIRREA also has a 10-year statute of limitations. According to German business daily "Handelsblatt," the emissions scandal at Volkswagen dates back to at least 2007.
'An incentive to cooperate'
Used sporadically before the 2008 financial crisis, FIRREA subsequently became the Obama administration's weapon of choice against banks in fraud cases. Citigroup, Bank of America and JP Morgan Chase all reached multi-billion-dollar FIRREA settlements with the Justice Department.
In the case of Volkswagen, the federal government might be using FIRREA as a threat to extract information. "The New York Times" reported in January that the automaker had refused to turn over documents to several state attorneys general, citing German privacy laws. The Justice Department has also accused Volkswagen of providing "misleading" information.
"One of the things that the government is doing with its legal actions and threat of legal actions is not just to sanction VW," Buell said. "It's to give the corporation an incentive to fully cooperate with the government's investigation - namely, to turn over the evidence."
With so many actors suing Volkswagen, finding a single resolution to the emissions scandal will prove difficult, Coffee said. But the federal judge in California overseeing the many consumer lawsuits could try to bring everyone to the same table.
"Volkswagen should want a global resolution with everybody arguing just about what their share is," Coffee said.