Federal agents raid Caterpillar offices in central Illinois

Ally Marotti Chicago Tribune Knight Ridder

CHICAGO — Caterpillar’s corporate headquarters in the central Illinois city of Peoria and two other company locations were raided by federal law enforcement authorities on March 2.

“Caterpillar is cooperating,” company spokeswoman Corrie Heck Scott said in an email. She declined to comment further.

Law enforcement officials also executed search warrants at Caterpillar facilities in East Peoria and Morton, said Sharon Paul, a spokeswoman for the U.S. attorney’s office for the Central District of Illinois.

Agencies present included the Internal Revenue Service’s Criminal Investigation Division, the Office of Export Enforcement at the U.S. Department of Commerce’s Bureau of Industry and Security, and the Federal Deposit Insurance Corp.’s Office of Inspector General, Paul said.

The Peoria Journal Star first reported the news on March 2.

According to the Commerce Department’s website, the Export Enforcement office focuses on “sensitive exports to hostile entities” and “prohibited foreign boycotts,” among other things.

Caterpillar has faced federal scrutiny in recent years over its overseas business practices and tax strategies.

The company said in 2015 that the IRS had proposed tax increases and penalties of about $1 billion after examining returns from 2007 to 2009. It wanted to tax profits from Caterpillar’s parts subsidiary based in Switzerland, but the company maintained that it paid all the taxes it owed.

A Senate investigation found in 2014 that the company had used its Swiss affiliate to take advantage of a corporate tax rate it had negotiated and avoided paying at least $2.4 billion in U.S. taxes.

A technical change made in 1999 shifted most of the profits from replacement parts sold outside the U.S. to the Swiss subsidiary but “did not … otherwise change how Caterpillar’s replacement parts business functioned on the ground,” according to a report on the Senate investigation.

One of the search warrants was executed on March 2 at a facility in Morton that according to the company’s website is responsible for shipping and receiving replacement parts to dealers and parts facilities around the world.

Separately, the company also said it received a grand jury subpoena in January 2015 requesting financial documents and information dealing with its U.S. and foreign subsidiaries. The company noted the investigation last month in its annual report, saying that it will cooperate.

“The company is unable to predict the outcome or reasonably estimate any potential loss,” according to the report. “However, we currently believe that this matter will not have a material or adverse effect on … operations, financial position or liquidity.”

Also noted in the annual report is a subpoena from the Securities and Exchange Commission for information concerning Caterpillar’s 2011 acquisition of mining equipment manufacturer Bucyrus International. The company stated in the report that it is cooperating with that investigation as well.

The SEC also raised concerns in 2014 about possible business operations in Syria, Sudan and Cuba. The subsidiaries in Sudan were dealing with products such as service parts, engines and generators, according to SEC documents. The company pointed out that sales to those countries were a small fraction of its total revenues and that some of the subsidiaries have since stopped accepting deals in Syria and Sudan.

Caterpillar denied doing any business in or with Cuba, noting that a news article the SEC cited was unrelated to the company.

The maker of mining and construction equipment announced in January that it plans to move its headquarters and 300 employees to the Chicago area, though it hasn’t yet named a location.

Though most of Caterpillar’s 12,000 jobs will remain in the Peoria area, the announcement of the move was a blow to the central Illinois town, which is entwined economically with the company.

On March 2 in Peoria, the lunch crowd at Adams Street Cafe, which is kitty-corner from Caterpillar’s headquarters, was unusually light, owner Joe Slyman said. Only about one-third of the typical 100-plus diners showed up, and that crowd is usually more than half Caterpillar employees, he said.

A line of more than a dozen official-looking vehicles filled the block outside the restaurant, Slyman said. Most were unmarked SUVs and vans, led by an Illinois State Police SUV. Slyman said one of his regular customers walked over not long after the vehicles pulled up around 11 a.m., took a selfie and encouraged the agents to stop by for lunch.

Several Illinois state troopers were on scene for security, per a request from the Department of Commerce, Illinois State Police Master Sgt. Jason Bradley said.

Caterpillar’s shares fell by nearly 6 percent, to a low of $92.84, in midday trading on March 2 before recovering slightly.

Chicago Tribune staff writer Lauren Zumbach contributed to this report.