The U.S. Federal Trade Commission is now reviewing whether ads touting Volkswagen's "clean diesel" engines amount to fraud, adding a new avenue for American regulators to punish the German automaker for its emissions-rigging deception.

FTC spokesman Justin Cole confirmed the probe on Friday. While the FTC cannot lay criminal charges, it can levy fines for deceptive advertising.

For years, Volkswagen used well-funded national ad campaigns to boast its vehicles had the perfect balance of peppy acceleration, 40-mile-per-gallon gas mileage and low greenhouse gas emissions.

One 30-second spot featured a white-haired grandmother holding a white scarf to the tailpipe of a new VW Golf SportWagen. "See how clean it is!" she exclaims, holding up the spotless shawl.

The ads have been taken off the air, but 420,000 of the vehicles were sold in the U.S.

A German recall of Volkswagen's diesel vehicles means 8.5 million cars throughout the EU will be fixed beginning in 2016, but the North American recall cannot begin until U.S. regulators are sure the fix is going to work.

The deadline from the German government puts the automaker under pressure to come up with replacement software for its 2.0-litre diesel engine by the end of the month.

German regulators are taking a hard line after learning that Volkswagen installed software on its diesel engines designed to control emissions during testing conditions, but allowing for higher emissions during real-world driving conditions.

Instead of waiting for VW to signal it is ready to recall the vehicles, German regulators have said the recall must begin in early 2016, though the fix on smaller engines is not likely to go ahead until later in the year.

That would affect 2.4 million vehicles in Germany and 8.5 million throughout the 28-nation EU as Germany's repeal is effective across the bloc.

Despite the scandal, Volkswagen sales in Europe rose 8.4 per cent in September, according to statistics released Friday by the European carmaker's association ACEA.

In a letter to Germany's transport minister, CEO  Matthias Mueller called for a "concerted and reliable approach" by all EU members in an effort to forestall different regulatory requirements in other jurisdictions.

Volkswagen said in a statement that the fix would be free and that customers can already enter their car's serial number on a special website to find out more.

EPA can order recall

The U.S. Environmental Protection Agency has the same power to recall vehicles as German regulators, though Transport Canada does not.

But the EPA said it wants to test the new software before it orders a recall and sets a timetable for North American cars to be repaired.

It said Thursday, it should have a proposed fix from Volkswagen next week on about 90,000 of the 482,000 cars with the cheating software in the U.S. The 2.0-litre engine that is the first to be fixed was installed in Audi and Skoda vehicles, as well as Passat, Jetta and Golf.

Who is to blame?

A group of about 20 investigators in Germany are working on a criminal probe into the software designed to fool emissions regulators.

On Friday, they said the investigation centres on "fewer than 10" individuals within the Volkswagen organization.

German magazine Der Spiegel reported that "at least 30 people" were involved in the deception, but Volkswagen has denied that report.

VW announced on Friday that it had recruited a Daimler executive and former judge Christine Hohmann-Dennhardt as board members for ntegrity and legal affairs.

Hohmann-Dennhardt, 65, formerly served as a judge on Germany's Federal Constitutional Court and is expected to play a key role helping VW recover from the scandal, heading up the company's anti-corruption efforts. 

With files from The Associated Press