Investigation of Caterpillar and report leaked to the Times sheds light on possible billions in foreign tax evasion havens

Since writing briefly yesterday about how federal investigators have raided three Caterpillar office buildings last week, in what may be a major tax evasion case, I kept going back to the New York Times article. The more I read it, the more I kept saying to myself that this could be something really major as it relates to the growing trend of U.S. Corporations accumulating trillions offshore to save on taxes. In addition, the details of the article raise some interesting and mysterious questions about an analysis of Caterpillar conducted by a Dartmouth professor Leslie Robinson, who teaches financial accounting in the MBA program and who before entering academia, worked as a CPA in the tax division of Ernst & Young. I predict that the New York Times article is just a seed of a story that will have long legs and may lead to revelations of massive tax fraud to the tune of billions.

First, some items of interest I found which will set the foundation: Jesse Drucker is a Reporter for the New York Times, who was hired there last year from the projects and investigations team at Bloomberg News. He has been writing about corporate taxes for years and one piece revealed how Google avoided billions in taxes using two obscure tax shelters known as the “Double Irish” attributing profits to a Bermuda mailbox.

Somehow, Jesse got his hands on an 85 – page analysis of Caterpillar’s overseas tax structure involving billions of dollars and a Caterpillar subsidiary in Switzerland. Drucker quoted directly from the report authored by Professor Leslie A. Robinson and which was commissioned by the government but he does not say which agency. Drucker writes that in the report she wrote that she was asked to provide a written opinion of Caterpillar’s financial reporting relating to various tax accounting standards as pertaining to the investigation of Caterpillar by the Federal Deposit Insurance Corporation Office of Inspector General. Lead number one. It is possible that Dr. Robinson was hired by this agency office. It is not clear who leaked the report to Drucker or why but Dr. Robinson when called by the Times refused comment.

Item 2. In the report, Dr. Robinson says that she estimates that Caterpillar has brought back (repatriated) $7.9 billion to the United States but structured as loans beyond the income taxed overseas. She says that the company failed to report those loans and the profits should be subject to federal taxes. The Times article says that the report was based on publicly available and internal financial data of the company. This seems to suggest that she had some private information from the company which may have been obtained by a government agency. The Times quotes the report as saying “I was provided with all documents available to the case agents assigned to the investigation.

Even more interesting, the Times quotes Dr. Robinson as stating: I believe that the company’s noncompliance with these rules (financial reporting rules) was deliberate and primarily with the intention of maintaining a higher share price. These actions were fraudulent rather than negligent.”

Why is all of those so important? The reason is because companies such as Caterpillar , Apple, Google and others have positioned trillions of dollars offshore in subsidiaries in tax havens like Bermuda and the Cayman Islands. Companies are permitted to defer taxes on the moneys generated offshore until they bring those funds back to the United States at which time they must pay 35 percent on the profits earned. A close look by Dr. Robinson appears to reveal that Caterpillar may have committed tax fraud. That will remain to be seen based on the outcome of the pending investigation by the United States Attorney’s Office for the Central District of Illinois.

It seems like Dr. Robinson may have been hired as an expert witness in that case. So far no one is saying for sure. But she is plenty smart in this arcane area of taxation and if she can do an analysis on Caterpillar she can sure do one on the 500 plus other conglomerates that may be skirting the tax laws to the tune of billions.

In addition, all of this comes at an important time in the life of our nation’s economy when we are striving to burn down the nearly 20 trillion in debt and find ways to pay for healthcare and other critical needs of our nation. Corporate taxation and possible tax evasion must come front and center if we are to thrive as a nation.

So the Times article of yesterday is a passing notation for now, but one which should help set a roadmap to determine what is fair reporting and payment of taxes by major corporations. I look forward to the next chapter in this story.

Jeffrey Newman represents whistleblowers.