The Washington Post reported Wednesday Arpaio, who calls himself "America's toughest sheriff" and is known for his tough enforcement of immigration laws, is under investigation for possible discrimination against Hispanics in violation of federal civil rights laws.
The Post said the Justice Department threat comes as sources confirmed a federal grand jury in Phoenix is weighing evidence to determine whether Arpaio has used his power as sheriff to investigate and intimidate political opponents and whether his office misappropriated government money.
Arpaio, a 78-year-old former Washington police officer who heads the 3,800-member sheriff's department, has been accused of racial profiling related to his "crime sweeps" in Hispanic neighborhoods.
Well beyond the U.S.-Mexico border state of Arizona, the sheriff has become a lightning rod in the debate over how best to handle illegal immigration in a nation with about 12 million illegal immigrants.
Arpaio lawyer Asheesh Agarwal denied the sheriff, a Republican who has been re-elected four times, has been uncooperative or employed racial profiling, misused money or targeted political enemies.
"The sheriff's office is cooperating fully with the grand jury investigation and has complete confidence that the inquiry will clear it of any wrongdoing," Agarwal told the Post. "The office has always fulfilled its responsibilities truthfully, honorably and in full compliance with state and federal law."
Arpaio's attorneys called the federal investigations politically motivated.
The Obama administration filed a lawsuit in June challenging Arizona's strict immigration law, saying it unconstitutionally interferes with federal authority.