The Corporate Climate of Corruption at Caterpillar Construction

Caterpillar Construction recently reached a settlement in a class-action lawsuit over allegedly defective heavy-duty diesel engines; a consolidation of a number of other lawsuits against the company due to inefficiencies in equipment, counter to what was otherwise promised.

Though Caterpillar denies the allegations and has said that to litigate the cases further “would be risky and costly for both sides,” it’s hard to believe their leadership won’t continue to dodge the matter and defend their position. Harder still is it to imagine that this is the first such instance of the construction juggernaut not only failing to deliver, but operating internationally in an allegedly but no doubt dangerously corrupt manner and unabated in fashion.

Indeed in 1994, Nationwide Equipment, a boutique yet global outfit serving the construction industry in over 50 countries on five continents based out of Jacksonville, Florida, engaged in the sales transaction of several Turkish-manufactured wheel and track loaders.

Although the manufacturer presented itself as a licensee of the U.S. construction company brand Caterpillar, and portrayed the equipment under trademark to be of the highest standards guaranteed by the company, in fact the quality was substandard and not covered by warranty. Furthermore, outfits purchasing these Turkish-manufactured products would not be able to re-sell them under the trademark in the United States.

In 2014, Caterpillar diverted more than $8bn in profits to Switzerland in order to avoid US taxes, according to investigators working for the Senate.

Michigan-based Democrat and Chairman of the Senate Subcommittee on Investigations, Carl Levin stated at the time that Caterpillar “…is a member of a corporate profit-shifting club that has shifted billions of dollars in profits offshore to avoid paying US taxes.”

And just last year, the company was forced to pay $74 million in damages to a family-owned British supplier, Miller UK. That verdict came after five years of fierce litigation, and much like their dispute with Nationwide, another David vs. Goliath court battle in which Goliath is a corporation worth $90 billion and for Miller UK or ‘David,’ they needed external funding to afford legal fees.

My enterprise, the Arcadia Foundation, has long pursued justice and freedom from corruption in both the private and public sector in instances all around the world. Often, we have to engage when there are conflicting ‘truths’ and decipher through arguments that can, on the surface, be effectively made in support of or against the agendas of the accused.

However the dealings of Caterpillar Construction, a very public organization with roots all over the world, are seemingly and often deliberately opaque.

There is no better proof of this than in Caterpillar instigating and initiating the lawsuit against Nationwide Equipment; clear intent to intimidate gone awry when their misrepresentation of equipment forced them into a settlement deal with Nationwide’s President Ed Kostenski.

U.S. District Judge Harvey E. Schlesinger was quoted as stating it was “…unusual for a company that initiated a trademark infringement action to end up paying out in the settlement.”

Unusual indeed.

Frankly, the list of unconscionable business practices from Caterpillar goes on and on, encompassing everything from racial discrimination to withholding health benefits. As the world’s largest construction equipment manufacturer, their firm should be held to the highest operational and legal standards, though the company’s leadership has demonstrated no interest in doing so.

And yet Caterpillar is not a standalone in this regard. An investigation by the UK Office of Fair Trading in 2008 uncovered widespread collusion amongst companies bidding for government contracts, as but an example.

And the World Economic Forum published an intriguing editorial regarding what makes the giants in the construction industry just so corrupt in their daily endeavors. For instance, ‘uniqueness,’ as in no two ‘goliath’ construction projects are the same, often making comparisons difficult and providing opportunities to inflate costs and hide bribes.

As previously suggested, their work is truly concealed – Materials and workmanship are often hidden, (e.g. steel reinforcing is cast in concrete), “…masonry is covered with plaster and cables and pipes enclosed in service ducts.”

And finally, age-old political bureaucracy, wherein numerous approvals are required from government in the form of licenses and permits at various stages of the delivery cycle, each providing a prospect for bribery or coercion.

While this systemic corruption remains inherent in the long-established construction giants, it is Caterpillar that should set the example, as I’ve made clear; seek the opportunity to raise the bar for the industry and right the wrongs in its operations and dealings both with competitor firms and its consumer base.

If not in the hands of Goliaths to create lasting change, it is in the hands of the international community; in the hands of Davids and in the hands of ours.