In December 2018, a team of federal law enforcement agents flew to Amsterdam to interview a witness in a years-long criminal investigation into Caterpillar, which had avoided billions of dollars in income taxes by shifting profits to a Swiss subsidiary.
Hours before the interview was to begin, the agents were dismayed to hear that the Justice Department was telling them to cancel the long-scheduled meeting.
The interview was never rescheduled, and the investigation would drag on for another few years before culminating in late 2022 with a Caterpillar victory. The Internal Revenue Service told the industrial giant to pay less than a quarter of the back taxes the government once claimed Caterpillar owed and did not impose penalties. The criminal investigation was closed without charges — even before agents had a chance to review the records seized from the company.
Caterpillar appears to have defused the investigation, at least in part, by deploying a type of raw legal authority rarely seen publicly. That 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 leading up to the canceled interview in the Netherlands, Caterpillar had recruited a small team of well-connected lawyers to plead the company’s case. Chief among them was William P. Barr, who had served as attorney general in the George H.W. Bush administration.
Caterpillar lawyers met with senior federal officials, including the Justice Department’s top tax official, Richard Zuckerman, according to agency emails. Lawyers have sharply criticized the conduct of one of the agents working on the Caterpillar case and questioned the legal basis for the investigation.
A week before agents interviewed the witness in Holland, President Donald J. Trump nominated Mr. Barr to return to the Justice Department as the next attorney general. Mr. Zuckerman then ordered the interview canceled and the investigation stopped, without consulting 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 US citizen cannot receive,” Jason LeBeau, one of the agents who worked on the investigation, wrote to the Justice Department’s inspector general late last year.
Spokesmen for the Justice Department and the IRS declined to comment.
“Caterpillar cooperated with the government in reviewing the issues and we were pleased to reach a resolution with the IRS,” said Joan Cetera, a company spokeswoman.
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 an IRS complaint alleging Caterpillar defrauded billions of US dollars. income taxes from improper parking of profits in a small Swiss subsidiary.
The IRS later accused Caterpillar of using “an abusive tax shelter” to understate its profits in the United States by $3 billion. A Senate committee also looked into the tax strategy, disclosing internal communications and interviewing Caterpillar employees and outside consultants, and raised questions about its legality.
That piqued the interest of the U.S. attorney near Caterpillar’s headquarters in Peoria, Ill. 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 investigates bank and securities fraud.) Mr. Miller soon convened a grand jury and began issuing subpoenas.
Investigations into corporate tax avoidance are generally civil rather than criminal. This was a rare exception, indicating that federal authorities believed that Caterpillar may have engaged in intentional wrongdoing. (The IRS also sought Justice Department approval to open a criminal investigation, though it’s unclear whether the agency received that approval.)
“I suspect this is one of the biggest paper cases you’ll ever do,” the head of the FDIC inspector general’s office emailed Mr. 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 it was hiring some Washington heavy hitters to help. Mr. Barr was one. He was joined by James Cole, who was the No. 2 official in Obama’s Justice Department.
In early 2018, the IRS notified Caterpillar that the agency was seeking taxes and penalties totaling $2.3 billion. The U.S. Attorney’s criminal investigation was also proceeding.
Mr. Barr and his colleagues met with Mr. Miller’s boss, the U.S. attorney for the Central District of Illinois, and asked him to end the investigation.
In May 2018, Mr Barr escalated the issue. He and Mr. Cole sent a 28-page letter to Mr. Zuckerman, the Justice Department’s top tax official, 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 particular aim at Mr LeBeau, saying he had a “fundamental misunderstanding of the relevant tax rules” and was following a “conspiracy theory”. The attacks were an unusual attempt to undermine the credibility of a single researcher.
To press Caterpillar’s case, Mr. Cole met several times with Mr. Zuckerman. While Mr. Cole was a lawyer in Washington, Mr. Zuckerman had only recently moved to the capital from Michigan to join the Justice Department.
Mr. Zuckerman was not a costume expert. He had worked for years at a Detroit law firm, where his expertise was defending companies and executives. Before that, he was a prosecutor and in the late 1970s helped investigate the disappearance of Teamsters boss Jimmy Hoffa.
Despite pressure from Mr Barr and Mr Cole, the investigation continued. Mr. LeBeau and others traveled the world to interview former Caterpillar employees.
Then on December 6, 2018, word leaked out that Mr. Trump was ready to nominate Mr. Barr to succeed Jeff Sessions as attorney general. The news spread quickly to the Justice Department.
That afternoon, a lawyer in the tax department wrote to Mr. Miller, the federal attorney in Illinois, to ask about the extent of Caterpillar’s objections to the ongoing investigation. Mr. Miller replied that he knew of several cases of protest by company representatives. He also asked what steps would be taken to exclude Mr Barr from the investigation.
Five days later, internal emails show, Mr. Zuckerman contacted the U.S. attorney for the Central District of Illinois. Mr. Zuckerman instructed him not to conduct any further investigation into Caterpillar. The US attorney relayed the order to Mr. Miller.
Mr. Miller was surprised. He still hadn’t told Mr. Zuckerman about the investigation. But he was now suspending the investigation after a recent meeting with Caterpillar’s lawyer, Mr. Cole, according to Justice Department emails.
“I wanted to confirm the directive we just received from your office,” Mr. Miller wrote to two Justice Department tax officials. The agents had already landed in the Netherlands and two others were due to board a flight to join them. The interview with a former Caterpillar manager was scheduled to begin in 16 hours. The last-minute cancellation “may jeopardize our ability” to ever interview the former manager, Mr. Miller wrote.
Mr Miller appealed for an explanation as to why the investigation was stopped. “Perhaps if we understood the underlying reasoning, we could address these concerns and proceed with the interview,” which took months to arrange, 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 would not expect the tax department to stop an investigation based on the statements of the defense lawyers without first having a discussion with the chief prosecutor,” he said.
Two hours after Mr. Miller sent the email, he received a response: Senior Justice Department officials had decided “that no further action” should be taken, including the planned interview, “until further notice.” (This direction was reported by Reuters in 2020.)
The agents were at a holiday party hosted by the US ambassador to the Netherlands when he called them to resign.
In early 2019, Mr. Barr’s nomination was up for Senate confirmation. He told senators he would comply with Justice Department ethics rules on recusing himself from matters involving clients such as Caterpillar.
Shortly after the Senate voted to confirm Mr. Barr, Mr. Miller suggested to officials in Washington that the investigation be reopened. In April, he was told to stop, an email shows.
Judith Friedman, a Justice Department lawyer who had helped arrange the canceled interview in Holland, was annoyed. “I am very concerned about this case and would like to be sure there is no political interference,” he wrote to a law enforcement colleague that month in an email reviewed by the Times. He suggested that someone notify the inspector general, who can file allegations of internal misconduct.
In September 2022, Caterpillar settled with the IRS, which assessed $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 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 disputed” the IRS’s interpretation of the tax rules at issue.
After the Biden administration took over in 2021, the Justice Department did not pursue the investigation. In late 2022, the department’s tax division informed Caterpillar “that it has no pending criminal tax case,” according to a securities filing. Last year, the government began returning materials seized by agents in the 2017 raids.
In his letter to the Justice Department’s inspector general, Mr. 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 Thrush contributed to the report. Kitty Bennett contributed to the research.
