Federal Scrutiny Leads to Raid at Caterpillar

Years of scrutiny by federal officials related to the business practices of Caterpillar overseas along with tax strategies reached a boiling point on Thursday when agents raided the Peoria headquarters of the maker of heavy machinery.

Authorities from three federal agencies, including those from the Internal Revenue Service entered the headquarters of Caterpillar prior to 11:00 am. They also searched two other facilities nearby.

At first, only confirming the raid, Caterpillar later acknowledged it was related to an issue that had nagged the company the past eight years: its use of a subsidiary for parts based in Switzerland and its tax-saving practices which prompted an investigation by the Senate, lawsuits by shareholders and a penalty of $1 billion.

The Thursday raid is another shock to the city that continues to adjust to the announcement in January by Caterpillar that it was relocating its headquarters to the Chicago area.

Long a domestic and global powerhouse of the construction and mining equipment world, Caterpillar has been investigated by government authorities for many years.

During 2014, an investigation by the U.S. Senate found Caterpillar used its affiliate in Switzerland to take advantage of a tax rate negotiated and avoided the paying of U.S. taxes in the amount of $2.4 billion.

Shortly thereafter, shareholder lawsuits were filed against the business and PwC its accounting firm, alleging a breach of its fiduciary duties. That particular matter remains ongoing.

A technical change made by Caterpillar during 1999 shifted the majority of its profits from the replacement parts sold internationally to its subsidiary in Switzerland known as Caterpillar SARL. However, it did not otherwise change the way the replacement parts company at Caterpillar functioned its operations according to the report by the U.S. Senate.

The investigation by the Senate came to be following a suit by a whistleblower in 2009. Daniel Schlicksup filed the suit alleging that the company shifted its profits as a way to avoid paying taxes.

The company in 2015 said that the IRS proposed tax and penalties of $1 billion after it had examined returns for the years 2007 through 2009. The IRS also wanted to tax the profits from the affiliate based in Switzerland but Caterpillar maintained it had paid all taxes if had owed.

In the most recent annual report that it filed in February, Caterpillar said it received a subpoena from a grand jury in January of 2015 that requested financial documents related to its foreign subsidiaries.