Corporations always say they want to be ethical businesses—and then the markets and Washington get involved, and everything goes to pieces. That uncomfortable truth about ethics & compliance is very much on display these days.
Let’s start with Caterpillar, whose senior tax and finance executives appeared before the Senate Permanent Subcommittee on Investigations last week to defend the company’s tax practices. As the Subcommittee tells the story, in the late 1990s Caterpillar and its audit firm PwC decided to restructure Caterpillar’s parts business so the legal entity owning that operation was based in Switzerland—where the effective tax rate for Caterpillar would be around 5 percent. “The Swiss strategy,” as it was called, would allow Caterpillar to avoid higher U.S. tax rates even though U.S. executives still ran the parts business on a daily basis from Caterpillar headquarters in Peoria, Ill.
