09/22/2015 02:43 EDT | Updated 09/22/2015 09:00 EDT

Volkswagen Under Investigation, Environment Canada Confirms

Environment Canada has opened an investigation into Volkswagen over the company's admitted use of software that falsifies emissions test results.

“Canadian legislation and regulations prohibit vehicle manufacturers and importers from equipping a vehicle with a defeat device," the federal department said in a statement issued Tuesday. The "defeat device" in question is software in some diesel-powered Volkswagen cars that switch engines to a cleaner mode when they detect an emissions test is being run.

"If officers uncover sufficient evidence of violations, enforcement action will be taken in accordance with ... the Canadian Environmental Protection Act," Environment Canada said.

Under that law, large-revenue companies like Volkswagen can be fined between $100,000 and $6 million for a first offence. Fines double for subsequent violations. Corporate officials can also be prosecuted, and penalties range from fines to imprisonment.

The U.S. Environmental Protection Agency on Friday ordered Volkswagen to fix some 500,000 vehicles it said were operating this software. Volkswagen said Tuesday it had installed the software in 11 million diesel-powered vehicles around the world. It also said it had set aside 6.5 billion euros (C$9.6 billion) to cover the expected costs of the fallout.

Environment Canada noted its emissions standards are aligned with U.S. standards, and the department works closely with the EPA. It says it's communication with both the EPA and Volkswagen Canada officials.

Volkswagen on Monday halted sales of diesel-powered vehicles in Canada, which account for more than a fifth of its sales here. Volkswagen Canada representatives did not say what the company's plans were for cars already on the road.

In the U.S., Volkswagen faces a US$37,500 fine for every violation. That could come to some $18 billion for the approximately 500,000 cars affected by the EPA’s recall.

In Canada, the company is already facing a class-action lawsuit. Merchant Law Group filed the suit Monday in the B.C. Supreme Court, and is urging owners of any of the affected vehicles to come forward.

“The VW cars under investigation seemed to pass emissions tests, but in the real world, were actually emitting up to 40 times the national standard for nitrogen oxide, which is linked to asthma and lung illnesses,” the law firm said in a statement.

The affected car models are the 2009 to 2015 VW Golf, Jetta and Beetle, as well as the 2009 to 2015 Audi A3 and the 2014 and 2015 VW Passat.

Until news of the scandal broke, Volkswagen was having a banner year in Canada.

Sales of VW brand light vehicles are up 12.6 per cent so far this year, while VW-owned Audi saw sales rise 16.6 per cent, according to data from Desrosiers Automotive.

Porsche, also owned by Volkswagen, has seen sales rise 30 per cent in Canada this year. That compares to an overall auto sales increase of 2.3 per cent in the year to date.

Volkswagen shares were down nearly 20 per cent Tuesday, closing at 106 euros. In the two days since markets opened Monday morning, the company has lost 34.5 per cent of its value, or about 27 billion euro (C$39.8 billion).