Volkswagen AG faces penalties up to $18 billion after being accused of designing software for diesel cars that deceives regulators measuring toxic emissions, the U.S. Environmental Protection Agency said on Friday.

"Put simply, these cars contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test," Cynthia Giles, an enforcement officer at the EPA, told reporters in a teleconference.

Volkswagen can face civil penalties of $37,500 for each vehicle not in compliance with federal clean air rules. There are 482,000 four-cylinder VW and Audi diesel cars sold since 2008 involved in the allegations. If each car involved is found to be in noncompliance, the penalty could be $18 billion, an EPA official confirmed on the teleconference.

The feature in question, which the EPA called a "defeat device," masks the true emissions only during testing and therefore when the cars are on the road they emit as much as 40 times the level of pollutants allowed under clean air rules meant to ensure public health is protected, Giles said.

If they contest the fines and go to court, however, I'm wondering if they will actually lose. This was some mischief designed to short sheet the system no doubt, but would they have an out if the case goes before a judge? I was looking over some of the state level requirements for the testing of vehicles and the boundaries to be followed are rather bare bones at best. Each vehicle in the qualifying categories which was manufactured after 1996 has to be equipped with an On-Board Diagnostics Generation II (OBDII) system. The emissions portion of this is heavily tied into your annoying "check engine" light.

The way most of the regulations are written seems to indicate that the vehicle must have a functional system of this type which is accurately monitoring system performance and meets the maximum emissions requirements at the time of testing. Obviously the VW vehicles in question were doing just that. But cars today have all sorts of bells and whistles which drivers can use to customize their driving experience. They can switch from "performance" mode to "economy" mode with the push of a button. Things like that obviously affect the vehicle's emissions. Other such options are available. And when you think about it, the "disable device" was really just putting the car into a different mode of operation which includes heavy emissions control. When it was disconnected and ready to head back out on the road it was switching back to a different mode with a bit more performance. None of that changes the fact that the emissions were within the required limits at the time of testing.