Caterpillar Inc. CEO Jim Umpleby sought to reassure employees reeling from a federal raid of the company's global headquarters late Thursday, expressing surprise at the timing of the search warrants but not a full understanding of what information authorities sought.
Below is the full statement Umpleby issued to employees:
"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
"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."
Federal officials seized documents and electronic records from three Caterpillar Inc. facilities, including the global headquarters Downtown, on Thursday morning as an apparent part of a criminal investigation into the company's tax strategy. Agents from an alphabet soup of federal agencies lined up outside the main administration building, a data center in East Peoria and the logistics center in Morton. Neither federal nor company officials would confirm the substance of the investigation.
"Caterpillar is cooperating," a brief statement from the company read.
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. Schlicksup settled the suit in 2012.
Caterpillar, in its annual 10-K filing with the U.S. Securities and Exchange Commission last month, acknowledged a criminal investigation into the tax strategy.
The company included the following statement on legal proceedings in the filing: "On January 8, 2015, the Company received a grand jury subpoena from the U.S. District Court for the Central District of Illinois. The subpoena requests documents and information from the Company relating to, among other things, financial information concerning U.S. and non-U.S. Caterpillar subsidiaries (including undistributed profits of non-U.S. subsidiaries and the movement of cash among U.S. and non-U.S. subsidiaries)."
The statement continued: "The Company has received additional subpoenas relating to this investigation requesting additional documents and information relating to, among other things, the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, dividend distributions of certain non-U.S. Caterpillar subsidiaries, and Caterpillar SARL and related structures. The Company is cooperating with this investigation."
In his complaint against Caterpillar, Schlicksup alleged 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 a unit in Geneva, Switzerland. This scheme, which operated from 2000 to 2009, was known as the "Swiss structure." Caterpillar SARL is based in Geneva.
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. The company denied the allegations.
The accusations, however, prompted an inquiry by an investigative panel of the U.S. Senate. The probe found Caterpillar saved about $2.4 billion in taxes through the "Swiss structure" over the course of 13 years. The Internal Revenue Service eventually proposed a $1 billion tax increase and penalties for years 2007-2009.
IRS agents were among the officials executing the search warrants on Thursday, and a copy of the search warrant posted online by WEEK Channel 25 indicated agents were seeking "documents regarding the movement of any products between the United States and Switzerland," among other items. The search warrants remain under seal in federal court and could not immediately be obtained by the Journal Star.
At the Downtown Caterpillar global headquarters building, at least some company employees were directed to the building's cafeteria and were told to remain there and not leave, according to one employee at the facility. Another source with direct knowledge indicated those sequestered there include employees in the Treasury, tax and accounting divisions, as well as from executive offices. At least some of those employees were released to go home for the day at approximately 11 a.m., with some being told that they would learn later in the day Thursday whether they'd be allowed to return to their offices on Friday.
An employee at Building AD in East Peoria said the arrival of agents at that facility was less disruptive than the one in Downtown Peoria appeared to be, with agents executing warrants at the East Peoria site appearing to concentrate on securing emails and electronic records.
Some of the agents entering the headquarters building wore jackets bearing an Internal Revenue Service logo, others appeared to be from the Federal Deposit Insurance Corporation. Others simply denoted that they were federal agents. A placard in the window of one of the federal vehicles noted it was used by police from the U.S. Department of Commerce Bureau of Industry and Security Office of Export Enforcement.
Since news of the search warrants broke, Caterpillar stock fell more than $4.50 from an opening-bell price of $98.36 per share and continued to trend lower throughout the day.
U.S. Rep. Cheri Bustos, D-Moline, who represents the district that includes the Peoria and East Peoria sites searched, said she was "troubled" in a statement released by her office.
"I'm troubled by the events at Caterpillar today, but I am pleased to see they are cooperating with federal authorities," she said. "My first concern is for the thousands of hardworking men and women at Caterpillar who, for generations, have made Peoria proud by manufacturing the iconic, yellow Caterpillar Earth-moving equipment. I will continue to closely monitor this situation as it develops."