Caterpillar’s United Industries LLC, a wholly owned subsidiary and part of Cat’s Progress Rail Services group, agreed to plead guilty and will pay $25 million for intentionally cheating its customers with unnecessary repairs, and then throwing rail car parts into the ocean to cover up its actions.
Caterpillar entered a guilty plea in U.S. District Court for the Central District of California on December 7, 2017.
The Wall Street Journal reported that United industries LLC 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., Greenbriar Co. and the Paccar International unit of XPO Logistics Inc.
The fines and restitution are modest for a large company like a Catapillar but the the case represents a blow against its reputation for quality service.
According to court documents and press reports, United Industries supervisors encouraged employees to smash brake parts, gouge wheels with chisels, and use chains to yank handles loose in order to increase revenue by making repairs. Other unnecessary repairs were randomly selected and performed.
United Industries employees reportedly then threw parts into the harbor at the Port of Long Beach to hide evidence from inspectors with the Federal Railroad Administration and Association of American Railroads. Divers working for port police later located the discarded parts on the ocean floor.
In a statement, Caterpillar said, “… the company has cooperated with the investigation into United Industries, one of our rail subsidiaries. It’s important this matter is resolved so we can put it behind us.
The company said it took “corrective action against employees involved in this matter" and "enhanced its compliance program,” per the report.
The actions occurred in 2008 and 2009. Caterpillar first disclosed the criminal investigation to shareholders in November 2013.