How Trump’s Justice Dept. Derailed an Investigation of a Major Company

How Trump’s Justice Dept. Derailed an Investigation of a Major Company
How Trump’s Justice Dept. Derailed an Investigation of a Major Company

In December 2018, a team of federal law enforcement agents flew to Amsterdam to interview a witness in a yearslong criminal investigation into Caterpillar, which had avoided billions of dollars of income taxes by shifting profits to a Swiss subsidiary.

A few hours before the interview was set to begin, the agents were startled to hear that the Justice Department was telling them to cancel the long-planned meeting.

The interview was never rescheduled, and the investigation would limp along for another few 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 that Caterpillar owed and did not impose any penalties. The criminal investigation was closed without charges being filed — and even without agents having the chance to review records seized from the company.

Caterpillar appears to have defused the investigation at least in part by deploying a type of raw 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 leading up to the canceled interview in the Netherlands, Caterpillar had enlisted a small group of well-connected lawyers to plead the company’s case. Chief among those was William P. Barr, who had served as attorney general in the George H.W. Bush administration.

Caterpillar’s attorneys met with senior federal officials, including the Justice Department’s top tax official, Richard Zuckerman, according to agency emails. The lawyers 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 the agents were to interview the witness in the Netherlands, President Donald J. Trump nominated Mr. Barr to return to the Justice Department as the next attorney general. Mr. Zuckerman then ordered the interview to be canceled and the inquiry halted, without getting input from the prosecutor overseeing the Caterpillar investigation, according to the emails.

The sequence of events alarmed some federal officials and set off calls for an internal investigation.

“It appears that Caterpillar was given special political treatment that the average U.S. citizen cannot obtain,” Jason LeBeau, one of the agents who worked on the investigation, wrote to the Justice Department’s inspector general late last year.

Justice Department and I.R.S. representatives declined to comment.

“Caterpillar cooperated with the government in its review of the issues, and we were pleased to have reached the resolution with the I.R.S.,” said Joan Cetera, a spokeswoman for the company.

The roots of the investigation into Caterpillar, which makes trucks, asphalt pavers and a variety of industrial parts and equipment, dated back to 2009, when a former employee filed an I.R.S. whistle-blower claim asserting that Caterpillar had fraudulently dodged billions of dollars in U.S. income taxes by improperly parking profits in a small Swiss subsidiary.

The I.R.S. later accused Caterpillar of using “an abusive tax shelter” to understate its profits in the United States by $3 billion. A Senate committee also dug into the tax strategy, unearthing internal communications and interviewing Caterpillar’s employees and outside advisers, 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 I.R.S. and the Federal Deposit Insurance Corporation’s Office of Inspector General, including Mr. LeBeau. (The F.D.I.C. office investigates bank and securities fraud.) Mr. Miller soon convened a grand jury and began issuing subpoenas.

Investigations of corporate tax dodges are generally civil, not criminal. This was a rare exception, indicating that the federal authorities believed that Caterpillar might have engaged in deliberate wrongdoing. (The I.R.S., too, sought the Justice Department’s approval to open a criminal investigation, though it is not clear whether the agency got that clearance.)

“I suspect this is one of the bigger paper cases you (we) will ever do,” the head of the F.D.I.C. 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 that it was hiring some Washington heavy hitters for help. Mr. Barr was one. He was joined by James Cole, who had been the No. 2 official in the Obama Justice Department.

By early 2018, the I.R.S. had informed Caterpillar that the agency was seeking taxes and penalties totaling $2.3 billion. The U.S. attorney’s criminal investigation was also moving ahead.

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 matter. 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 a requirement that federal criminal tax investigations be approved by the Justice Department’s tax division. And it took particular aim at Mr. LeBeau, saying he had a “basic misunderstanding of the relevant tax rules” and was pursuing a “conspiracy theory.” The attacks were an unusual effort to undermine the credibility of an individual investigator.

To press Caterpillar’s case, Mr. Cole met several times with Mr. Zuckerman. Whereas Mr. Cole was a powerhouse lawyer in Washington, Mr. Zuckerman had only recently moved to the capital from Michigan to join the Justice Department.

Mr. Zuckerman was not a tax specialist. He had worked for years at a Detroit law firm, where his expertise was defending companies and executives. Before that, he had been a prosecutor and in the late 1970s helped investigate the disappearance of the Teamsters boss Jimmy Hoffa.

Despite the pressure from Mr. Barr and Mr. Cole, the investigation continued. Mr. LeBeau and others traveled the world to interview former Caterpillar employees.

Then, on Dec. 6, 2018, word leaked that Mr. Trump was poised to nominate Mr. Barr to succeed Jeff Sessions as attorney general. The news quickly spread through the Justice Department.

That afternoon, a lawyer in the tax division wrote to Mr. Miller, the federal prosecutor in Illinois, to ask about the extent of Caterpillar’s objections to the ongoing investigation. Mr. Miller responded that he knew of several instances of the company’s representatives protesting. He also asked what steps would be taken to wall off Mr. Barr from the investigation.

Five days later, internal emails show, Mr. Zuckerman contacted the U.S. attorney in the central district of Illinois. Mr. Zuckerman directed him not to conduct any further investigation into Caterpillar. The U.S. attorney relayed the order to Mr. Miller.

Mr. Miller was surprised. He still had not briefed Mr. Zuckerman on the investigation. Yet he was now halting the probe after recently meeting with Caterpillar’s lawyer, Mr. Cole, according to Justice Department emails.

“I wanted to confirm the direction we just received from your office,” Mr. Miller wrote to two Justice Department tax officials. Agents had already landed in the Netherlands, and two more were about to board a flight to join them. The interview with a former Caterpillar manager was due to start in 16 hours. Canceling at the last minute “may compromise our ability” to ever interview the former manager, Mr. Miller wrote.

Mr. Miller made a plea for an explanation about 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 arrange, he wrote.

Kevin Sweeney, who spent six years in Justice Department’s tax division, said in a recent interview that the situation sounded “very unusual” based on The Times’ description. “I would not expect the tax division to stop an investigation based on representations made by defense counsel without first having a discussion with the lead prosecutor,” he said.

Two hours after Mr. Miller sent the email, he got a response: Senior Justice Department officials had decided “that no further action,” including the planned interview, should be taken “until further notice.” (That direction was reported by Reuters in 2020.)

The agents were at a holiday party hosted by the U.S. ambassador to the Netherlands when they got a call telling them to stand down.

In early 2019, Mr. Barr’s nomination was up for Senate confirmation. He told senators that he would abide by the Justice Department’s ethics rules regarding recusing himself from matters involving clients like Caterpillar.

Shortly after the Senate voted to confirm Mr. Barr, Mr. Miller proposed to officials in Washington that the investigation be restarted. In April, he was told to hold off, an email shows.

Judith Friedman, a Justice Department lawyer who had helped arrange the canceled interview in the Netherlands, was disturbed. “I am very concerned about this case and would like to be assured that there is no political interference going on,” she wrote to a law enforcement colleague that month in an email reviewed by The Times. She suggested that someone notify the inspector general, who can field complaints about internal misconduct.

In September 2022, Caterpillar reached a settlement with the I.R.S., 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 that the agency previously said Caterpillar owed. (The $490 million included other issues in addition to the Swiss strategy at the heart of the investigation.) The company noted at the time that it “vigorously contested” the I.R.S.’s interpretation of the tax rules at issue.

After the Biden administration took over in 2021, the Justice Department still didn’t pursue the investigation. At the end of 2022, the department’s tax division informed Caterpillar “that it does not have a pending criminal tax matter,” according to a securities filing. Last year, the government began returning the materials that agents had seized in the 2017 raids.

In his letter to the Justice Department’s inspector general, Mr. LeBeau said that 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 reporting. Kitty Bennett contributed research.

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Kyle C. Garrison

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