Chilean prosecutors have started a formal criminal investigation targeting President Michelle Bachelet's daughter-in-law over allegations of tax evasion in a real estate venture.

The unfolding scandal has hurt the popularity of the president.

Bachelet daughter-in-law Natalia Compagnon and 12 other people were notified Friday that they are suspected of participating in the illegal dealings of Caval, a company that is half-owned by Compagnon. She is married to the president's eldest son, Sebastian Davalos.

Prosecutors accuse Compagnon and business partner Mauricio Valero of intentionally acting to distort operations and evade taxes owed from 2012 to 2014. They are accused of not reporting 118 million pesos (about $165,000) in income statements for those years.