Caterpillar Illinois Facilities Searched by Law Enforcement

By Timothy Mclaughlin Markets Reuters

Caterpillar offices searched by Federal agents

FBN's Charlie Gasparino weighs in on Federal agents executing a search warrant of Caterpillar facilities.

Federal law enforcement officials searched three facilities of heavy machinery manufacturer Caterpillar Inc on Thursday, prompting a sharp sell-off in the company's stock.

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A spokeswoman for the U.S. Attorney Office for the Central District of Illinois, Sharon Paul, confirmed that federal law enforcement officials conducted searches at locations in Peoria, East Peoria and Morton, Illinois, but did not say why federal agents raided the three locations.

Caterpillar, in a statement issued on Thursday afternoon, said that the search may be related to an Internal Revenue Service investigation on profits earned by a Swiss subsidiary. It said that "while the warrant is broadly drafted, we believe the execution of this search warrant is regarding, among other things, export filings that relate to the CSARL matter first disclosed in Caterpillar's Form 10-K filed on February 17, 2015, and updated in Caterpillar's most recent Form 10-K filed with the SEC on February 15, 2017."

Agencies involved in the search included the IRS' Criminal Investigation Division, the U.S. Department of Commerce's Bureau of Industry and Security's Office of Export Enforcement, and the Federal Deposit Insurance Corp.'s Office of Inspector General, Paul said.

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Officials at the agencies could not be reached for comment.

Caterpillar shares fell 4.3 percent to close at $94.36 on the New York Stock Exchange after trading as low as $92.84.

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IRS SEEKS $2 BLN; CATERPILLAR CONTESTS

Caterpillar is fighting an Internal Revenue Service demand that the company pay $2 billion in taxes and penalties for profits assigned to a Swiss parts distribution subsidiary, Caterpillar SARL, or CSARL, according to filings with the Securities and Exchange Commission. That subsidiary was also the subject of a 2014 Senate committee report that concluded Caterpillar shifted billions in profits abroad and had $2.4 billion in taxes deferred or avoided from 2012.

"As a result of those licensing and servicing agreements, over the next thirteen years from 2000 to 2012, Caterpillar shifted to CSARL in Switzerland taxable income from its non-U.S. parts sales totaling more than $8 billion, and deferred or avoided paying U.S. taxes totaling about $2.4 billion," the report said.

Caterpillar, in its 2016 annual report, said it is "vigorously contesting" the IRS demand. "We believe that the relevant transactions complied with applicable tax laws and did not violate judicial doctrines," it stated.

Caterpillar also disclosed in its report that it had received grand jury subpoenas from the U.S. District Court for the Central District of Illinois seeking documents and information related to the movement of cash among U.S. and non-U.S. subsidiaries, and the purchase and resale of replacement parts by Caterpillar Inc. and non-U.S. Caterpillar subsidiaries, including Caterpillar SARL. Caterpillar said it is cooperating with the investigation and did not believe it would have a material impact on its finances.

The facility in Morton, according to the company’s website, is responsible for receiving and shipping replacement parts to parts facilities and Caterpillar dealers worldwide.

Seven people, all wearing dark colored jackets marked either “IRS special agent” or “Police federal agents,” entered the Caterpillar headquarters, according to a video posted by the Peoria Journal Star. Several of the agents were armed, while others were pulling large black roller bags as they entered the building. (http://player.tout.com/pjstar/kspupi)

Caterpillar reported sales fell 18 percent in 2016 to $38.5 billion and since late 2015 it has shrunk its workforce by more than 16,000 employees and consolidated or closed 30 facilities. Caterpillar cut 12,300 jobs in 2016, including 7,700 in the United States.

It said it was considering closing two more major production facilities, including one in Aurora, Illinois, and also announced it was moving its corporate headquarters from Peoria to Chicago this year.

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