Earlier this month, Big Four accounting firm Price Waterhouse Coopers sustained a high-profile hit to its reputation when the senior accountants the firm sent to ensure the integrity of the Oscars broadcast, a job the firm has had for more than half a century, couldn’t manage to hand out the correct envelope at the televised ceremony’s surrounding. Now it looks like the chaos that this botch created was a prelude to far, far worse. For years, federal investigators have been scrutinizing Catapillar’s overseas tax affairs, examining the complex maneuvers involving billions of dollars and one of the company’s Swiss subsidiaries.
Now, a report commissioned by the government accuses the equipment manufacturing giant of carrying out a massive tax and accounting fraud involving billions of dollars. And the accounting firm Caterpillar employed to perform its audits?
The envelope please?
You guessed it.
The report, part of a wide investigation being undertaken by the United States attorney’s office for the Central District of Illinois, the IRS and the Inspector General of the F.D.I.C., thus far is neither public nor made available to Caterpillar for review. It describes an illegal company strategy to bring in billions of dollars from offshore affiliates while avoiding federal income taxes. Leslie A. Robinson, an accounting professor at the Tuck School of Business at Dartmouth College and the author of the report, concluded that…
“Caterpillar did not comply with either U.S. tax law or U.S. financial reporting rules. I believe that the company’s noncompliance with these rules was deliberate and primarily with the intention of maintaining a higher share price. These actions were fraudulent rather than negligent.”
Dr. Robinson’s 85-page analysis, based on publicly available and internal financial data from Caterpillar as well as bank data tracking wire transfers from Switzerland into the United States, found that Caterpillar brought back $7.9 billion into the U.S. structured as loans, over and beyond the income that had already been taxed overseas. The company failed to report those loans for tax or accounting purposes, though under U.S. law those profits would be subject to federal taxes.
For example, the professor found correspondence between the company and the Securities and Exchange Commission in which Caterpillar said it had $2.5 billion in income eligible to be brought to the United States tax-free. The company, she wrote, did not have “anywhere near” that much money still available to be brought in tax-free.
No charges have been filed yet. Last week, federal agents raided three Caterpillar buildings near its headquarters in Peoria, Ill., as part of the investigation. Caterpillar said it was cooperating with law enforcement, but denied wrongdoing. The Internal Revenue Service is currently seeking more than $2 billion in income taxes and penalties on profits earned by the Swiss unit.
Here’s at least part of the role: it didn’t stop them. Investors and stockholders as well as the public are the true clients when a Fortune 500 company hires a famous accounting firm. This is insurance as well as assurance that the foxes aren’t guarding the hen house. Official audits, signed by the accounting firm, are certifications that everything is honest, true and trustworthy.
You know, like the Oscar voting results.
A spokeswoman for Price Waterhouse Coopers said, “We don’t comment on client matters or pending investigations.”
Publicly, that is. I’m pretty sure the comments within the firm run along the lines of “How can we repair our reputation after March, 2017?”
I’m not at all certain it can be repaired.
Addendum: The biased anti-President Trump journalism cheap shot on this story comes from Fox Business. Its headline:
Report: Trump-Touted Caterpillar Accused of Tax Fraud in Report to Federal Investigators
Why is the President linked to the subject of this negative headline? “Last month, Trump praised Caterpillar for producing great bulldozers.”
Nobody’s saying they don’t make great bulldozers. Never mind: Trump is now “linked” to the company’s alleged tax fraud.
This is disgusting.
Source: New York Times