In December 2018, a team of federal agents flew to Amsterdam to interview a witness in a year-long criminal investigation into Caterpillar, which had avoided billions of dollars in income taxes by shifting profits to a Swiss subsidiary.
A few hours before the interview was to begin, the agents were shocked to hear that the Justice Department was telling them to cancel the long-planned meeting.
The interview was never rescheduled and the investigation would continue to limp along for a few more years before culminating, in late 2022, with a victory for Caterpillar. The Internal Revenue Service told the giant industrial company to pay less than a quarter of the back taxes the government once claimed Caterpillar owed and imposed no penalties. The criminal investigation was closed without charges being filed, or even without agents having the opportunity to review records seized from the company.
Caterpillar appears to have defused the investigation, at least in part, by deploying the kind of brute legal power that rarely becomes publicly visible. This 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 recruited a small group of well-connected lawyers to plead the company’s case. Chief among them was William P. Barr, who had been attorney general during the George HW Bush administration.
Caterpillar lawyers met with top federal officials, including the Justice Department’s top tax official, Richard Zuckerman, 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 interviewed the witness in the Netherlands, President Donald J. Trump nominated Barr to return to the Justice Department as the next attorney general. Zuckerman then ordered the interview to be canceled and the investigation stopped, without receiving information from the prosecutor overseeing the Caterpillar investigation, according to the emails.
The sequence of events alarmed some federal officials and sparked calls for an internal investigation.
“It appears that Caterpillar received special political treatment that the average American citizen cannot get,” Jason LeBeau, one of the agents who worked on the investigation, wrote to the Justice Department’s inspector general late last year.
Representatives from the Justice Department and the IRS declined to comment.
“Caterpillar cooperated with the government in its review of the issues and we are pleased to have reached resolution with the IRS,” said company spokeswoman Joan Cetera.
The roots of the investigation into Caterpillar, which makes trucks, asphalt pavers and a variety of industrial parts and equipment, date back to 2009, when a former employee filed a complaint with the IRS. whistleblower claim claiming that Caterpillar had fraudulently evaded billions of dollars in U.S. income taxes by improperly depositing profits in a small Swiss subsidiary.
The IRS later accused Caterpillar of using “an abusive tax shelter” to understate its U.S. profits by $3 billion. A Senate committee also dug in tax strategy, unearthing internal communications and interviewing Caterpillar employees and outside advisors, and raised questions about its legality.
That sparked the interest of the U.S. attorney near Caterpillar’s headquarters in Peoria, Illinois. A veteran 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 banking 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 authorities believed Caterpillar may have committed deliberate wrongdoing. (The IRS also sought approval from the Justice Department to open a criminal investigation, although it is unclear whether the agency obtained that authorization.)
“I suspect this is one of the most important paper cases we have ever pursued,” the head of the FDIC inspector general’s office emailed LeBeau in 2016. “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 that he was hiring some Washington heavyweights to help him. Mr. Barr was one of them. He joined James Colewho had been the Officer number 2 in Obama’s Justice Department.
In early 2018, the IRS had informed Caterpillar that the agency was seeking taxes and penalties totaling $2.3 billion. The US attorney’s criminal investigation was also moving forward.
Barr and his colleagues met with Miller’s boss, the U.S. attorney for the Central District of Illinois, and asked him to end the investigation.
In May 2018, Barr escalated the issue. He and Cole sent a 28-page letter to Zuckerman, the Justice Department’s top prosecutor, and the deputy attorney general. Rod Rosenstein.
The letter argued that the investigation violated the requirement that federal criminal tax investigations be approved by the Justice Department’s tax division. And he took special aim at LeBeau, saying he had a “basic misunderstanding of the relevant tax rules” and that he was following a “conspiracy theory.” The attacks were an unusual effort to undermine the credibility of an individual researcher.
To push the Caterpillar case, Cole met with Zuckerman several times. While Cole was a prominent lawyer in Washington, Zuckerman had recently moved to the capital from Michigan to join the department of justice.
Mr. Zuckerman was not a tax specialist. he had worked for years at a Detroit law firm, where his experience was the defense of companies and executives. Before that, he had been a prosecutor and in the late 1970s he helped investigate the disappearance of Teamsters boss Jimmy Hoffa.
Despite pressure from Barr and Cole, the investigation continued. LeBeau and others traveled around the world to interview former Caterpillar employees.
Then on December 6, 2018, word filtered out that Trump was prepared to nominate Barr to succeed Jeff Sessions as attorney general. The news spread quickly through the Department of Justice.
That afternoon, a tax division lawyer wrote to Mr. Miller, the federal prosecutor for Illinois, asking about the scope of Caterpillar’s objections to the ongoing investigation. Mr. Miller responded that he knew of several cases of protests by company representatives. He also asked what steps would be taken to isolate Mr. Barr from the investigation.
Five days later, internal emails show, Zuckerman contacted the U.S. attorney in the Central District of Illinois. Zuckerman ordered him not to conduct any further investigations into Caterpillar. The US attorney conveyed the order to Mr. Miller.
Mr. Miller was surprised. He had not yet informed Mr. Zuckerman about the investigation. However, he was now pausing the investigation after recently meeting with Caterpillar’s lawyer, Mr. Cole, according to Justice Department emails.
“I wanted to confirm the address we just received from your office,” Miller wrote to two Justice Department tax officials. The agents had already landed in Holland and two more were about to board a flight to join them. The interview with a former Caterpillar director was due to begin in 16 hours. Canceling at the last minute “may compromise our ability” to ever interview the former manager, Miller wrote.
Mr. Miller asked for an explanation as to why the investigation was being paused. “Perhaps if we understood the underlying reasoning, we could address those concerns and still conduct the interview,” which had taken months to organize, 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 wouldn’t expect the tax division to stop an investigation based on statements made by the defense attorney without first speaking with the lead prosecutor,” he said.
Two hours after 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 address was reported by Reuters in 2020.)
The agents were at a party hosted by the U.S. ambassador to the Netherlands when they received a call telling them to leave.
As of early 2019, Barr’s nomination was pending confirmation by the Senate. He said senators that he would comply with Justice Department ethics rules regarding recusing himself from matters involving clients like Caterpillar.
Shortly after the Senate voted in favor confirm Mr. Barr, Mr. Miller proposed to officials in Washington that the investigation be restarted. In April, they told him to wait, an email shows.
Judith Friedman, a Justice Department lawyer who had helped arrange the canceled interview in the Netherlands, was distraught. “I am very concerned about this case and would like to be assured that there is no political interference,” she wrote to a law enforcement colleague that month in an email reviewed by The Times. She suggested someone notify the inspector general, who can receive complaints about internal misconduct.
In September 2022, Caterpillar reached a settlement with the IRS, which court $490 million in taxes over a 10-year period, plus $250 million in interest. It was a fraction of the more than $2 billion in taxes the agency had previously said Caterpillar owed. (The $490 million included issues other than the Swiss strategy at the center of the investigation.) The company noted at the time that it “vigorously contested” 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. In late 2022, the department’s tax division informed Caterpillar “that it does not have any pending criminal tax matters,” according to a securities presentation. Last year, the government began returning materials that agents had seized in 2017 raids.
In his letter to the Justice Department’s inspector general, LeBeau said investigators had not even been allowed to review most of the seized records, which he said was “completely unprecedented” in his 22-year career.
Glenn Zorzal contributed reports. kitty bennett contributed to the research.
