In our Reality Check, last week the EPA and the California Air Resources Board (CARB), accused Volkswagen of fudging the law with software to defeat smog equipment their popular TDI engines.

They allege Volkswagen employed smog equipment “defeat devices” in nearly 500,000 2.0 liter four-cylinder TDI equipped cars sold in North America since 2009 under both the Volkswagen and Audi brands.

The complaint says the ECU has multiple software modes which run the engine clean for testing, but not clean enough to pass a test when driving normally. The EPA says this could allow the car could emit up to 40 times the pollutants allowed by law.

The investigation started back in 2014, with a discovered issue of higher than allowed levels of Nitrogen Oxide (NOx). Volkswagen worked with the EPA, revising software and initiated a recall last year to address the issue.

The EPA and CARB say however that independent testing done on real-world cars last spring revealed that the new software patch in fact did not fully address the higher NOx levels because it only ran clean enough to pass during certain types of smog testing.

The Obama Administration could pursue fines in the neighborhood of $38,000 per car and seek criminal prosecution in addition to forcing a recall of the nearly 500,000 cars. The dollar figure could be tens of billions.

Volkswagen will surely be coming up with a fix as soon as possible no matter the cost, given their TDI engines are a cornerstone of their product strategy as well as their bottom line here in North America. Diesel engines have accounted for up to 90% of sales in some models.

In a statement on Sunday, Professor Dr. Martin Winkerkorn, CEO of Volkswagen said:

“The Board of Management at Volkswagen AG takes these findings very seriously. I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. Volkswagen has ordered an external investigation of this matter.”

He added, “We do not and will not tolerate violations of any kind of our internal rules or of the law.”

A stop order has been issued for the sale of all new 2015 and 2016 Volkswagen and Audi cars with the 2.0 liter TDI engines. At current it’s still legal to drive and resell used TDI equipped cars, and the 3.0 liter V6 TDI is not part of the complaint.

This is a serious matter for Volkswagen, and time will tell who knew what and when. Volkswagen does seem to take the stance they’re culpable here and how things go from this point forward is anyone’s guess.