Caterpillar is one of the most well-known American corporations in the world. The company designs, engineers, manufactures, and markets machinery, engines, insurance, and financial products. Peoria has been home to Caterpillar for decades, although it has recently announced they will move headquarters to Chicago. However, this month, company offices were visited by U.S. tax and financial agents.
Agents from the IRS, Commerce Department, and Federal Deposit Insurance Corp. conducted searches at offices in Peoria, East Peoria, and Morton. A spokesperson for the U.S. attorney's office of the Central District of Illinois declined comment on the raid. However, the raid may be related to information about using offshore subsidiaries reported by a whistleblower in 2009.
A former executive with the company filed a whistleblower lawsuit in 2009, claiming the company had used offshore subsidiaries based in Switzerland and Bermuda to avoid paying nearly $2 billion in taxes between 2000 and 2009. According to the lawsuit, Caterpillar attributed $5.6 billion in profit from a sales unit in Geneva, while the parts were sold and shipped from Illinois. Eventually, the lawsuit was settled in 2012.
U.S. investigators looked into the claims. In 2014, the Senate's Permanent Subcommittee on Investigations found Caterpillar had improperly shifted billions in profits to Switzerland, paying only a portion of what the corporate tax rate is in the U.S., about 4% to 6% compared to 35%.
As a result, the IRS proposed about $2 billion in additional taxes and penalties they would collect on profits earned from transactions related to their Swiss subsidiary. Caterpillar has contested the additional taxes, saying they fully complied with federal tax laws. “We believe the relevant transactions complied with applicable tax laws and did not violate judicial doctrines,” Caterpillar reported.
According to a Senate report, Caterpillar made changes to their Swiss parts subsidiary in 1999, but did not “otherwise change how Caterpillar's replacement parts business functioned on the ground.”
The FDIC and IRS Criminal Investigation division initially declined comment. However, it was reported later that the issue was related to the use of their parts subsidiary in Switzerland. Shares in Caterpillar have suffered as a result of the news, with their steepest decline in 8 months. A couple of weeks ago, the stock fell 4.8% to $93.77.
If you are an employee or executive with knowledge of illegal activity committed on behalf of a company, you may be protected by state or federal whistleblower laws. Whistleblower laws may protect you from adverse actions related to reporting illegal activity or cooperating with state or federal investigations. You should speak with an experienced Illinois employment and whistleblower attorney to understand your rights and your options. At Benassi & Benassi, we are committed to our clients.