In December 2018, a team of federal law enforcement agents flew to Amsterdam to interview a witness in a year-long criminal investigation into Caterpillar, which avoided billions of dollars in income taxes by shifting profits to a Swiss subsidiary.
Hours before the interview was to begin, the agents were shocked to hear that the Justice Department was asking them to cancel the long-planned meeting.
The interview was never rescheduled, and the investigation would continue for a few more years before concluding with a victory for Caterpillar in late 2022. The Internal Revenue Service asked the giant industrial company to pay less than a quarter of the back taxes the government once claimed Caterpillar owed and did not impose any penalties. The criminal investigation was closed without charges being filed – and without even giving agents a chance to review records seized from the company.
Caterpillar appears to have thwarted the investigation at least in part by using a type of raw legal power that is rarely seen publicly. The account is based on interviews with people familiar with the investigation, regulatory filings and internal Justice Department emails provided to Senate investigators and reviewed by The New York Times.
In the months before the canceled interview in the Netherlands, Caterpillar had enlisted a small group of well-connected lawyers to plead the company’s case. Chief among them was William P. Barr, who served as Attorney General in the George H.W. Bush administration.
Caterpillar lawyers met with senior federal officials, including Richard Zuckerman, the Justice Department’s top tax official, according to agency emails. Lawyers sharply criticized the conduct of one of the agents working on the Caterpillar case and questioned the legal basis of the investigation.
A week before agents were to interview the witness in the Netherlands, President Donald J. Trump nominated Mr Barr to return to the Justice Department as the next attorney general. Without receiving input from the prosecutor overseeing the Caterpillar investigation, Mr. Zuckerman ordered the interview canceled and the questioning halted, according to the emails.
The sequence of events alarmed some federal officials and demanded an internal investigation.
“It appears that Caterpillar was given special political treatment that the average American citizen cannot receive,” Jason LeBeau, one of the agents working on the investigation, wrote to the Justice Department’s inspector general late last year.
Justice Department and IRS representatives declined to comment.
“Caterpillar cooperated with the government in reviewing the issues and we are pleased to reach a resolution with the IRS,” company spokeswoman Joan Cetera said.
The roots of the investigation into Caterpillar, which makes trucks, asphalt pavers and a variety of industrial parts and equipment, began in 2009, when a former employee filed an IRS whistle-blower claim alleging that Caterpillar fraudulently filed U.S. Billions of dollars were embezzled in India. Income tax by improperly crediting profits in a small Swiss subsidiary.
The IRS later accused Caterpillar of using “abusive tax shelters” to understate its profits in the United States by $3 billion. A Senate committee also investigated the tax strategy, locating internal communications and interviewing Caterpillar employees and outside consultants and raising questions about its legality.
This piqued the interest of a US attorney near Caterpillar’s headquarters in Peoria, Illinois. An experienced prosecutor, Eugene Miller, was assigned to the case. He worked with agents from the IRS and the Federal Deposit Insurance Corporation’s Office of Inspector General, including Mr. LeBeau. (The FDIC office investigates bank and securities fraud.) Mr. Miller soon convened a grand jury and began issuing subpoenas.
Investigations into corporate tax evasion are generally civil, not criminal. This was a rare exception, indicating that federal officials believed Caterpillar may have engaged in intentional wrongdoing. (The IRS also sought Justice Department approval to launch a criminal investigation, although it is unclear whether the agency received that approval.)
The head of the FDIC inspector general’s office emailed Mr. LeBeau in 2016, “I suspect this is one of the largest paper cases you (we) have ever done.” “It’s a great case.”
In early 2017, federal agents searched and seized records from several Caterpillar buildings in and around Peoria as part of the investigation.
Two weeks later, the company announced it was hiring some Washington heavy hitters to help. Mr. Barr was one of them. He was joined by James Cole, the No. 2 official in the Obama Justice Department.
In early 2018, the IRS informed Caterpillar that the agency was seeking back taxes and penalties totaling $2.3 billion. The US attorney’s criminal investigation was also progressing.
Mr. Barr and his aides met with Mr. Miller’s boss, the U.S. attorney for the Central District of Illinois, and asked him to end the investigation.
In May 2018, Mr. Barr escalated the case. He and Mr. Cole sent a 28-page letter to Mr. Zuckerman, the Justice Department’s top tax official, and to Rod Rosenstein, the deputy attorney general.
The letter argued that the investigation violated the requirement that federal criminal tax investigations be approved by the Tax Division of the Justice Department. And it took particular aim at Mr LeBeau, saying he had a “fundamental misunderstanding of the relevant tax rules” and was pursuing a “conspiracy theory”. These attacks were an unusual attempt to undermine the credibility of an individual investigator.
To press Caterpillar’s case, Mr. Cole met with Mr. Zuckerman several times. While Mr. Cole was a powerhouse lawyer in Washington, Mr. Zuckerman recently came to the capital from Michigan to join the Justice Department.
Mr. Zuckerman was not a tax expert. He worked for years in a Detroit law firm, where his specialty was defending companies and executives. Before that, he was a prosecutor and helped investigate the disappearance of Teamsters boss Jimmy Hoffa in the late 1970s.
Despite pressure from Mr. Barr and Mr. Cole, the investigation continued. Mr. LeBeau and others traveled around the world to interview former Caterpillar employees.
Then, on December 6, 2018, the word leak Mr Trump was set to nominate Mr Barr as attorney general to replace Jeff Sessions. This news quickly spread through the Justice Department.
That afternoon, a lawyer for the tax department wrote to Mr. Miller, the federal prosecutor in Illinois, asking about the extent of Caterpillar’s objections to the ongoing investigation. Mr. Miller responded that he was aware of several examples of protests by company representatives. He also asked what steps would be taken to remove Mr Barr from the investigation.
Five days later, internal emails show, Mr. Zuckerman contacted the U.S. attorney in the Central District of Illinois. Mr. Zuckerman instructed him not to investigate the caterpillar any further. The US attorney sent the order to Mr. Miller.
Mr. Miller was surprised. He still had not briefed Mr. Zuckerman about the investigation. Yet, according to Justice Department emails, he was halting the investigation after recently meeting with Caterpillar’s lawyer, Mr. Cole.
“I wanted to confirm the instruction I just received from your office,” Mr. Miller wrote to two Justice Department tax officials. The agents had already landed in the Netherlands, and two more were scheduled to fly in to join them. The interview with a former Caterpillar manager was scheduled to begin in 16 hours. Canceling the former manager’s interview at the last minute “may have impacted our ability to do so,” Mr. Miller wrote.
Mr Miller requested clarification as to why the investigation was being stopped. “Perhaps if we understand the underlying logic, we can address those concerns and still conduct the interviews,” which took months to arrange, he wrote.
Kevin Sweeney, who spent six years in the Justice Department’s tax division, said in a recent interview that the situation seemed “very unusual” based on The Times’ description. “I would not expect the tax department to stop the investigation on the basis of representations made by the defense counsel without discussing it with the chief prosecutor,” he said.
Two hours after Mr. Miller sent the email, he received a response: Senior Justice Department officials had decided that no further action, including the planned interview, should be taken “until further notice.” (That directive was reported by Reuters in 2020.)
The agents were at a holiday party hosted by the US Ambassador to the Netherlands when they received a call and were asked to stand down.
In early 2019, Mr. Barr’s nomination was up for Senate confirmation. He told senators he would follow Justice Department ethics rules regarding recusing himself from matters involving clients like Caterpillar.
Soon after the Senate voted to confirm Mr. Barr, Mr. Miller proposed to officials in Washington that the investigation be reopened. An email shows that in April, he was asked to stop.
Justice Department lawyer Judith Friedman, who had helped arrange the canceled interviews in the Netherlands, was upset. “I am very concerned about this case and would like to be assured that there is no political interference taking place,” she wrote to a law enforcement colleague in an email reviewed by The Times that month. He suggested that someone inform the Inspector General, who could file complaints about internal misconduct.
In September 2022, Caterpillar reached a settlement with the IRS, assessing $490 million in taxes and $250 million in interest over a 10-year period. That was a fraction of the more than $2 billion in taxes the agency previously said Caterpillar owed. (The $490 million at the center of the investigation also involved other issues besides the Swiss strategy.) The company noted at the time that it “vigorously opposed” the IRS’s interpretation of the tax rules at issue.
After the Biden administration took office in 2021, the Justice Department still did not pursue the investigation. According to the securities filing, in late 2022, the Department of State’s tax division informed Caterpillar that it “has no criminal tax cases pending.” Last year, the government began returning materials that agents had seized in a 2017 raid.
In his letter to the Justice Department’s inspector general, Mr. LeBeau said investigators were not even allowed to review most of the records seized, which he said was “completely unprecedented” in his 22-year career. .
glen thrush Contributed to the reporting. kitty bennett Contributed to research.
