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Cat CEO Umpleby On Thursday's Raid

"We are an honorable company"

March 03, 2017

Per the search and seizure warrant (available here)  issued by the the U.S. District Court for the Central District of Illinois case number 17-MJ-7039, federal officials entered and searched Caterpillar offices on Thursday as part of a continuing tax strategy investigation.

Caterpillar Inc. CEO Jim Umpleby issued this internal statement to employees yesterday:

"This morning, a number of our colleagues in the Peoria area were surprised when federal authorities arrived to execute a search warrant. I'm sorry that we had to experience this today.

"We believe today's actions, while related to export filings, are connected in part to a previous matter related to our Switzerland-based subsidiary, CSARL, that has been under review for more than three years. Because of the broad nature of today's warrant, we don't have enough information at this time to provide a full understanding of the authorities' intent.

"We were surprised by today's actions primarily because we have been so cooperative with the authorities in this investigation. We have acted in good faith and as a good corporate citizen. That will not change. We will continue to work toward a resolution of these matters, just as we did today.

"While we continue to work through this, I want you to remember: We are Caterpillar. We are an honorable company, with nearly a century of experience behind us and a strong future ahead. We live by our Values in Action every day, which state we conduct our business within the framework of applicable laws and regulations in every part of the world where we operate. That was true yesterday. It is true today. It will be true tomorrow.

"Although we are facing this unexpected event, I want us all to continue to do the work at hand, serve our customers and support our teams. I know that you will be asked questions from family and friends about the activities today. I encourage you to review the below FAQs, and if you have additional questions, please feel free to bring them forward to our leadership.

"As we can provide more information, we will. Thank you for your commitment to Caterpillar."

The investigation appears to stem from revelations about the company's tax strategy as outlined in a 2009 federal wrongful termination lawsuit brought by Daniel Schlicksup. The lawsuit alleged the company shifted profits overseas and to offshore shell companies to avoid paying more than $2 billion in U.S. taxes.

In his complaint against Caterpillar, Schlicksup alleged that from 2000 to 2009. the company sold and shipped spare parts globally from its warehouse in Morton while attributing at least $5.6 billion of profits from those sales to Caterpillar SARL in Geneva, Switzerland. This scheme was known as the "Swiss structure."

A different strategy, the "Bermuda structure," allegedly involved shell companies that had no business operations returning profits to the United States without paying taxes on them.

According to Quartz Media, Schlicksup was a Caterpillar executive in charge of the company’s international tax strategy. He took part in a review of the Swiss tax strategy that began in 2006. Multinationals frequently exploit legal loopholes in the tax code, but Schlicksup worried that the restructuring had no “economic substance,” but was merely a tax avoidance scheme - illegal under US tax rules.

In 2007, he sent an e-mail to the company’s chief ethics officer saying “the essence of the issue is that to my knowledge, the parts business is managed from the US, yet we are running the parts profits through Switzerland as if the business was managed by CSARL.”

In 2008, Schlicksup was transferred to another division, which he considered a demotion, and sued the company, alleging tax evasion. His suit was settled out of court in 2012. However, the information that came to light during those proceedings caught the interest of the Senate.

 

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