Exclusive: U.S. investigators were told to take 'no further action' on Caterpillar, ex-client of Barr

By Aram Roston

WASHINGTON (Reuters) - Before William Barr became President Donald Trump’s choice to lead the U.S. Department of Justice, he represented Caterpillar Inc, a Fortune 100 company, in a federal criminal investigation by the department.

Much was at stake for Caterpillar: Since 2018, the Internal Revenue Service has been demanding $2.3 billion (£1.7 billion) in payments from the company in connection with the tax matters under criminal investigation. The company is contesting that finding.

A week after Barr was nominated for the job of attorney general, Justice officials in Washington told the investigative team in the active criminal probe of Caterpillar to take “no further action” in the case, according to an email written by one of the agents and reviewed by Reuters.

The decision, the email said, came from the Justice Department’s Tax Division and the office of the deputy attorney general, who was then Rod Rosenstein.

“I was instructed on December 13, 2018,” wrote the agent, Jason LeBeau, “that the Tax Division and the Office of the Deputy Attorney General jointly came to the decision that no further action was to be taken on the matter until further notice.” LeBeau, an inspector general agent at the U.S. Federal Deposit Insurance Corporation, declined interview requests from Reuters.

Since then, a source close to the case says, the investigation has “stalled.” The order to freeze the Caterpillar investigation has not been previously reported.

Reuters was unable to determine why Justice issued the “no further action” directive. It was not issued by Barr, as it came before he was confirmed. A Justice Department spokesperson said Barr recused himself from any Caterpillar discussions once he became attorney general, but declined further comment. Barr, in testimony during his confirmation hearings, said rules of legal privilege precluded him from discussing his work for the company.

Rosenstein, who left the government in May 2019, did not respond to a phone message and emails seeking comment. The IRS declined to comment about the case.

Caterpillar, for its part, has reported to investors that the grand jury investigation is ongoing. The company told Reuters the DOJ’s Tax Division is reviewing the investigation. Caterpillar has said for years that it did nothing wrong.

Potential conflicts of interest, whether real or apparent, often arise when high-powered lawyers switch between private practice and government service. Bruce A. Green, a former federal prosecutor who teaches at Fordham Law School, said it is not unheard of for attorney generals to have clients who had business before the DOJ. He noted that in 2009, President Barack Obama’s attorney general, Eric Holder, recused himself from a case involving Swiss Bank UBS, a prior client.

But Green said he could not recall a case where agents were told to take no further action on a matter involving an incoming attorney general’s former client without some kind of explanation. “Why would you just stop?” he asked.

A source familiar with the progress of the investigation, which is being conducted out of the U.S. Attorney’s Office for the Central District of Illinois, said that since December 2018, “it’s slowed, it’s stalled, it’s languishing. Not a lot of action is being taken.” But the source stressed the probe is not technically closed, and couldn’t be called “dead.”

The government’s questions about Caterpillar’s tax structure started with a whistleblower lawsuit in 2009 that laid out what it said was a complex “tax dodge” to route Caterpillar profits on parts sales through a company in Switzerland. Then, in 2014, the U.S. Senate Permanent Subcommittee on Investigations dug into the issue, and alleged the company adopted a sales strategy that “shifted billions of dollars in profits away from the United States and into Switzerland, where Caterpillar had negotiated an effective corporate tax rate of 4% to 6%.” The Senate investigators quoted company insiders who said the system was structured for “tax avoidance.”

At the time, Caterpillar said the transactions, and tax strategy, were entirely legal. A Caterpillar vice president testified to the committee that having an offshore subsidiary collect profits and pay taxes was “nothing more than the standard business operations and tax planning that any prudent multinational enterprise would employ.”

The next year, a federal grand jury in Illinois launched a criminal investigation. In March 2017, federal agents raided three Caterpillar offices, wheeling out evidence in large black plastic boxes. In a report written for the government, a consultant for the investigators, Leslie Robinson, called the tax strategy “fraudulent rather than negligent.”

Two weeks after the raid, Caterpillar Chief Executive Jim Umpleby announced the hiring of Barr as company counsel. Barr would “take a fresh look at Caterpillar’s disputes with the government, get all the facts, and then help us bring these matters to proper resolution based on the merits.”

Robinson, the investigative consultant who had questioned Caterpillar’s tactics, told Reuters she met with Barr in May 2017, briefing him on why she thought the tax strategy was illegal, and to hear why the company thought it was not. Robinson said she would not discuss the meeting details or the basis for her conclusion in the government’s report.

In November 2018, as the White House scanned potential lawyers to take the job of attorney general, Barr’s name was among those floated. On December 7, the White House announced his selection. “He was my first choice from day one,” Trump said. Barr has emerged as one of Trump’s most aggressive aides, most recently authorizing federal prosecutors to investigate the counting of votes in this month’s presidential election, which Trump lost to Democrat Joe Biden.

In January 2019, Robinson, a professor at Dartmouth College’s Tuck School of Business, sent a note to FDIC agent LeBeau asking if the case was “dead or progressing.” Robinson wrote, “From a personal standpoint, it is a bit peculiar to have spent so much of my time and energy on something and then to have no idea if it will amount to anything concrete.”

“Quite frankly I am somewhat in the dark as well,” LeBeau replied. He said he had understood that a new U.S. attorney was in discussions with Caterpillar, but knew little more. “I know the process is going incredibly slow.”

This October, Robinson communicated again with the investigators. In emails reviewed by Reuters, she asked what had happened to the case, explaining that a Reuters reporter had inquired. That’s when LeBeau explained, copying other agents and a prosecutor on the email, that they had been told to take no further action a week after Barr’s nomination 20 months ago.

“We were given no additional explanation,” he wrote.

(Reporting by Aram Roston in Washington. Editing by Ronnie Greene)