Caterpillar Railcar Unit to Plead Guilty and Pay $5 Million Fine for Dumping Parts -- Update
08 Dezember 2017 - 3:09AM
Dow Jones News
By James R. Hagerty and Bob Tita
A unit of Caterpillar Inc. admitted that it cheated customers by
performing unnecessary repairs to their railcars and pleaded guilty
to dumping brake shoes and other parts into the ocean to hide
evidence, according to court documents.
United Industries LLC, part of Caterpillar's Progress Rail
Services unit, agreed to pay a criminal fine of $5 million as well
as a total of $20 million in restitution to three railcar-owning
companies: TTX Co., Greenbrier Cos. and the Pacer International
unit of XPO Logistics Inc.
The fine and restitution are modest for a large company like
Caterpillar, but the case represents a blow to its reputation for
quality service.
The Illinois-based manufacturing giant entered its guilty plea
in U.S. District Court for the Central District of California
Thursday afternoon.
Caterpillar said it had "taken corrective action against
employees involved in this matter" and "enhanced its compliance
program." The company said it hadn't found any "safety issues
related to this matter."
The Wall Street Journal reported three years ago that some
workers at the Caterpillar unit had resorted to smashing brake
parts with hammers, gouging wheels with chisels or using chains to
yank handles loose, according to current and former employees.
United Industries employees told federal investigators that they
were encouraged by certain supervisors to increase revenue by
making unneeded repairs.
United at the time operated a repair facility at the Port of
Long Beach, a business from which it has since withdrawn. The
company's duties included inspecting railcars passing through the
Southern California port to see whether any parts needed to be
repaired or replaced under industry guidelines, according to an
exhibit attached to the plea agreement, filed in federal court last
month.
Employees sometimes replaced parts on railcars even when those
parts didn't show signs of damage sufficient to require replacement
under industry standards, according to court documents. They "would
also knowingly pick random repairs to make on the railcars without
conducting an inspection" meeting those standards, the documents
said.
Inspectors from the Federal Railroad Administration and the
Association of American Railroads make periodic visits to
rail-repair yards to check whether proper procedures are being
followed and to inspect parts removed from cars to determine
whether they were broken or worn. To conceal evidence from those
inspectors, the documents said, employees threw such parts as roof
liners, roller bearing adapters and brake shoes into the
harbor.
After getting a tip from an unidentified whistleblower, divers
working for the port police found those parts on the ocean floor
near the repair facilities.
The dumping described in the plea agreement occurred in 2008 and
2009. Mark A. Williams, an assistant U.S. attorney in Los Angeles,
said the case dragged on for years because of the complexity of the
investigation and calculations regarding restitution to the railcar
owners.
Mr. Williams added that the case was particularly serious
because the improper repair practices had the potential to cause
railroad accidents.
The plea agreement specifies that United Industries violated
federal law by dumping refuse in navigable waters.
Caterpillar disclosed in November 2013 that it was subject to a
criminal investigation of charges that it made "improper or
unnecessary" inspections and repairs of railroad cars but provided
few details.
The Wall Street Journal described the main thrusts of the
investigation in July 2014.
Greenbrier and XPO Logistics had no immediate comment on the
railcar case. TTX declined to comment. TTX, which is owned by the
major freight railroads, replaced Progress as the railcar service
provider at Long Beach and at other West Coast rail hubs.
Caterpillar's guilty plea in the railcar case comes as the
manufacturer faces other legal woes.
In a separate criminal probe, federal agents raided its former
headquarters in Peoria, Ill., and two other nearby facilities in
March in connection with a tax-reduction plan involving a
Switzerland-based subsidiary. The raids were conducted by agents
with the U.S. Department of Commerce, Internal Revenue Service and
Federal Deposit Insurance Corp.'s inspector general's office.
Agents were focused in large part on materials related to
Caterpillar's export filings, and people familiar with the matter
have said investigators were examining the tax implications of what
appeared to be missing Caterpillar filings. Caterpillar has said it
"believes its tax position is right" and is cooperating with the
government.
--Andrew Tangel contributed to this article.
Write to James R. Hagerty at bob.hagerty@wsj.com and Bob Tita at
robert.tita@wsj.com
(END) Dow Jones Newswires
December 07, 2017 20:54 ET (01:54 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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