Whistleblower Behind Caterpillar Tax Headache Could Make $600 Million

Caterpillar, the world’s largest maker of bulldozers and other construction equipment, faces a $2 billion IRS bill and possible criminal charges, while the accountant who tipped off the feds may make a windfall, Bloomberg BusinessWeek reported.

Daniel Schlicksup, an accountant who had been with Caterpillar for 16 years, sent emails in 2008 to top executives with the subject line, “Ethics issues important to you, the board and Cat shareholders.” This occurred after a meeting in which he concluded that no one had passed his tax concerns on to the CEO. He had been telling his bosses that the company was engaged in an overseas tax arrangement that he figured had helped it illegally avoid more than $1 billion in taxes.

BusinessWeek reported, “He alluded to his concerns about the tax strategy and described, in emotional terms, a systematic effort to shut him down. ‘I am now an example to my colleagues, peers and others that they made the correct choice when they chose to not report ethical issues and ignore company policy,’ he wrote. Attached to the email was a 15-page memorandum describing how his superiors had retaliated against him for speaking out. The next morning he sent 137 pages of documents purporting to show how, with the help of its auditor, PricewaterhouseCoopers, Caterpillar had devised a way to shift billions in profit to Switzerland to avoid U.S. taxes.”

Since then, the IRS has demanded $2 billion in back taxes and penalties, a U.S. Senate committee has concluded Caterpillar avoided taxes on more than $8 billion in revenue, and federal agents searched the Peoria, Ill., headquarters and took away computers, documents and other evidence that could be related to false financial statements. Caterpillar executives could face jail time if criminal charges are brought.

The IRS typically pays whistleblowers 15% to 30% of what it collects. If Cat pays the full $2 billion, Schlicksup may receive $300 million to $600 million. But nothing is guaranteed. The IRS determines how much a whistleblower contributed to a case and, in turn, how much he or she is paid.

A company spokeswoman says, “Caterpillar believes its tax position is right. We are in the process of responding to the government’s concerns and hope to be in a position to bring this matter to resolution within a reasonable time frame.”

Read the full story here.

Andersen Tax Achieves Another Legal Victory in Trademark Dispute

Andersen Tax has achieved another legal victory in its effort to protect the trademark rights in its iconic brand name, Andersen, in jurisdictions around the world, the firm announced.

In a settlement agreement this week, the Brazilian firm, MP Cont Sociedade Simples Ltda., agreed never to use the terms “Andersen,” “Arthur Andersen,” or any mark incorporating the term “Andersen” (or any confusingly similar term) to promote its services anywhere in the world. The agreement resolves legal action that Andersen Tax filed before the Brazilian intellectual property authorities and other related disputes.

It is another legal blow to a French firm, Arthur Andersen & Co., formerly named Quatre Juillet Maison Blanche, which illegally used the trademark Arthur Andersen to recruit and promote the Brazilian firm as part of an international accountancy, tax and business consultancy network, Andersen Tax announced.

“In blatant disregard for the law, the French infringers began promoting the Andersen brand for offices throughout Brazil, apparently without conducting any due diligence investigation on Brazilian trademark rights,” says a statement by Oscar L. Alcantara, managing director and associate counsel at Andersen Tax. “Had they done so, they would have seen that Andersen Tax has had its filings in the intellectual property offices of Brazil for several years now.”

It is the third legal setback for the French entity. In early April, the U.S. District Court for the Northern District of California entered an injunction prohibiting the French network’s U.S. affiliate, MoHala Enterprises, doing business as Sundial Consulting, from using the terms “Andersen” or “Arthur Andersen” in the United States. Later that month, the High Court of Judicature in Bombay, India, imposed a permanent injunction against an Indian firm, International Business Associates (IBA), from using the terms “Andersen,” “Arthur Andersen,” and confusingly similar trademarks to promote its professional services consultancy.

The Indian court also handed down a preliminary injunction against the French entity, Arthur Andersen & Co., temporarily prohibiting it from promoting its consultancy services in India. IBA had aligned itself with the French firm as an affiliate member of its network in India.

“We have now successfully enforced our rights to the Andersen name and precluded the French firm from violating our legal rights on three different continents,” says Mark Vorsatz, CEO and Managing Director at Andersen Tax.

He continues in a statement, “I feel sorry for those individuals or groups who have been misled and may have paid fees to the French firm for the use of a name which we own.”

The French entity, Arthur Andersen & Co., misrepresented its global presence on its website, Andersen Tax says. In addition to listing a Houston, Texas, address that did not exist, the site lists four locations in the U.S. where Arthur Andersen & Co. has no office, no firm and no representation. It is similar in Brazil and India where the French website lists seven locations where they have no office, firm or representation. In Dubai, Andersen Tax was informed that the French network was not authorized to use the name of the local firm they listed on their website.

“I think that this group has been exposed for what they are. We will continue to aggressively pursue actions against this group and enforce our legal rights,” Vorsatz says. “For all of the partners and employees of Andersen Tax, and for all of those who had worked at Arthur Andersen, we have every commitment to prosecute our rights against this attempt to take advantage of the Andersen brand.”

PwC Gets Hit With $6.5 Million Fine in UK

PwC’s firm in the United Kingdom was fined a record £5 million ($6.5 million) by the U.K.’s Financial Reporting Council for the way it checked the books of collapsed social housing maintenance company Connaugh, Reuters reported.

The Financial Reporting Council (FRC) also fined Stephen Harrison, a retired PwC audit partner, 150,000 pounds ($193,000) for misconduct in relation to the 2009 audit of listed Connaught, which went into administration in the following year.

The watchdog said in a statement that following an FRC investigation and a 12-day hearing, an independent tribunal found audit misconduct in relation to mobilization costs, long-term contracts and intangible assets.

“PwC were also ordered to pay the (FRC) Executive Counsel’s costs and to make an interim payment on account of 1.5 million pounds,” the FRC said.

PwC said in a statement, “Since 2010 when the case began, we’ve worked hard to improve our procedures and processes. Audit quality is of paramount importance to PwC and the FRC’s annual audit quality assessments have shown a trend of improvement in our work over several years.”

Connaught, which maintained affordable housing for British residents, needed to appoint administrators in September 2010 after it failed to secure financing from lenders. In June, U.K. housing authorities suddenly announced they were delaying several housing upgrade projects in response to the government’s planned budget cuts.

The watchdog is seeking to raise its profile and crack down harder on misconduct after a series of accounting scandals prompted some lawmakers to question its effectiveness, Reuters reported.

Earlier this year it asked the government for more powers.

The FRC’s largest fine had been a 4-million-pound penalty imposed on another Big 4 accounting firm, Deloitte, last year in relation to an audit of Aero Inventory.

Andersen Tax Wins Permanent Injunction Against India-Based International Business Associates

The High Court of Judicature in Bombay, India, has ruled against two international firms for illegally infringing on the trademark rights of Andersen Tax, which owns the brand name Andersen in India and other jurisdictions around the world, Andersen Tax announced

The court ruled in favor of Andersen Tax on April 28 and imposed a permanent injunction restricting International Business Associates (IBA) from using the terms Andersen, Arthur Andersen and confusingly similar trademarks to promote its professional services consultancy.

Furthermore, the court handed down a preliminary injunction against a French firm known as Arthur Andersen & Co. (formerly known as Quatre Juillet Maison Blanche), temporarily prohibiting it from using the trademarks Andersen and Arthur Andersen to promote consultancy services in India. IBA had aligned itself with the French firm as an affiliate member of its network in India.

In April, the U.S. District Court for the Northern District of California entered a consent-injunction prohibiting U.S-affiliate MoHala Enterprises, doing business as Sundial Consulting, from using the terms Andersen or Arthur Andersen in the United States.

“Andersen Tax will enforce its legal rights vigorously around the world to protect its ownership of the Andersen name,” Mark Vorstaz, Andersen Tax CEO, says in a statement.

Andersen Tax, which owns multiple trademark filings incorporating the name Andersen for tax and legal services in 95 countries, filed suit against International Business Associates in April 2017, the firm announced.

Senators Question KPMG’s Role in Wells Fargo Scandal

U.S. senators are asking the PCAOB to look into KPMG’s role in the Wells Fargo scandal after they discovered the firm knew the company had fake accounts on the books, Compliance Week reported.

Massachusetts Democrats, Sens. Elizabeth Warren and Edward Markey conducted their own inquiry into the scandal and found that both KMPG and the Wells Fargo board of directors were aware of the false accounts, but the Big 4 firm didn’t flag it because it wasn’t considered relevant to its audit of the financial statements.

In a letter to the PCAOB, they say:

  • KPMG “became aware of and analyzed in detail” the production of false accounts at Wells Fargo,
  • the Wells Fargo board knew of the activity, and KPMG knew the board knew, and
  • KPMG concluded the improper sales practices did not implicate the effectiveness of internal controls over financial reporting.

Warren, Markey and two other senators wrote to the firm in October to ask how Wells Fargo could have been given clean audit opinions from 2011 to 2015 “while failing to notice fraud and mismanagement affecting millions of customer accounts perpetrated by thousands of bank employees that led to billions in lost market capitalization,” Compliance Week reported. The senators say KPMG responded the next month by saying it new of the false accounts, but found the misconduct “did not implicate any key control over financial reporting and the amounts reportedly involved did not significantly impact the bank’s financial statements.”

According to the senators’ account of KPMG’s response, the firm says it knew of false account activity as early as 2013 and interviewed numerous company officials, outside counsel and regulators, reviewed reports and concluded that the firm was “satisfied that the appropriate members of management were fully informed with respect to such conduct.”

“KPMG did not publicly report the widespread fraud, despite now acknowledging that its auditors were aware of it prior to the 2016 settlement,” the senators wrote. “Do PCAOB rules or guidance indicate whether auditors have a responsibility to publicly report or otherwise act on their knowledge of illegal or inappropriate activity by their clients?”

A PCAOB spokesman said the board looks forward to reviewing and responding to the letter. A KPMG spokesman said the firm takes seriously its role as independent auditor and is confident its audits were planned and performed in accordance with professional standards. “Beyond that, our response letter stands on its own, and we have nothing further to add,” the firm said.

Settlement Reached in Andersen Tax Trademark Dispute in California

Andersen Tax has settled a lawsuit with MoHala Enterprises, a Monterey, Calif., limited liability company, which was accused of six counts of state and federal trademark infringement, counterfeiting and unfair competition.

The suit, filed March 13 in U.S. District Court in San Francisco, said MoHala worked in concert with French businessman Stéphane Laffont-Réveilhac, who identified himself as global MP of Arthur Andersen in a March 1 LinkedIn post and contended that the firm had been “reconstituted.” Also named in the suit are Veronique Martinez and Arthur Andersen & Co., a French company that is similar to an LLC in the U.S.

According to the settlement, MoHala was part of a network of individuals and entities recruited by Laffont-Réveilhac and Martinez to become affiliates of Arthur Andersen & Co.

Andersen Tax announced Wednesday in a release that the specific terms are confidential, but “MoHala Enterprises d/b/a Sundial Consulting has agreed never to use the terms ‘Andersen’ or ‘Arthur Andersen’ to promote its professional services consultancy, and has withdrawn its membership as an affiliate of the French society calling itself ‘Arthur Andersen & Co.’ Sundial Consulting will also be dissolving Arthur Andersen LLP, a California limited liability partnership it previously formed for purposes of serving as the U.S. member and affiliate of this French society.”

In attempting to reach MoHala’s attorneys, IPA reached out to Oscar Alcantara, Andersen Tax managing director and associate counsel, who says in an email, “Our adversary has not designated counsel in the U.S. case.”

Andersen Tax says it owns multiple trademark registrations incorporating the name Andersen for tax and business consultation services around the world.

Mark Vorsatz, Andersen Tax CEO, told IPA last month that Laffont-Réveilhac met with an Andersen Tax managing director in 2015 and proposed a “sale of defendants’ brand portfolio” in exchange for “an extraordinarily large sum of money.”

“We have no interest in paying them anything for anything,” Vorsatz said at the time, adding that Andersen Tax owns the trademark in over 90 counties, including the U.S. and the European Union. Laffont-Réveilhac has twice been denied use of the trademark in court and Andersen Tax is intent on using all legal avenues to end the matter, Vorsatz said.

Laffont-Réveilhac has continued to post on LinkedIn, most recently outlining “Arthur Andersen’s European Strategy.” He wrote April 12 that “we strive for a rapid increase in power, while taking all the time necessary for a rigourous selection of our future affiliated members for a network of first quality.”

See entire post here.

KPMG Fires Head of U.S. Audit, Others After Improper Warning of Inspection

KPMG has fired the head of its U.S. audit practice, four other partners and one employee after the Big 4 firm found they improperly received advance warning of audits the PCAOB planned to inspect.

KPMG says they violated the firm’s Code of Conduct. The PCAOB, which oversees just under 2,000 accounting firms, says that one of its employees had left over the matter and that it had taken steps to “reinforce the integrity of its inspection process,” the Financial Times reported.

KPMG said it discovered in February that an employee who had joined the company from the PCAOB had received confidential information from someone who still worked there about which audits would be inspected. The new employee then shared the information with other KPMG staff. All six fired employees, “either had improper advance warnings of engagements to be inspected by the PCAOB” or were aware that others had received this information but “failed to properly report the situation in a timely manner,” the firm reported.

The five partners included Scott Marcello, vice chair of its U.S. audit practice. “We are taking additional steps to ensure that such a situation should not happen again,” says Lynne Doughtie, KPMG CEO.

The firm says a whistleblower reported the information and the firm then reported the leak to the PCAOB and SEC and hired an outside law firm to conduct an investigation.

James Doty, chairman of the PCAOB, says, “This demonstrates the importance the accounting firms and the investing public place on our inspection results, and warrants a hard look by us at what is needed to reinforce the integrity of our inspection process.”

Marcello will be replaced by Frank Casal, a KPMG veteran of 38 years. The firm also replaced its national managing partner for audit quality and professional practice, naming Jackie Daylor, who is already on the firm’s board. David Middendorf previously held the role.

KPMG said the affair would not have any effect on any client’s financial statements.

Firm Using Andersen Name Denounces Andersen Tax Claims

A new global firm calling itself Arthur Andersen has fired back at Andersen Tax officials who say the once-iconic brand name is actually theirs.

Following a LinkedIn announcement last week that Arthur Andersen is being “reconstituted” in 16 countries, San Francisco-based Andersen Tax (FY15 net revenue of $197 million) objected to the use of the name, which they said has been rightfully theirs to use since 2014.

Reaction was swift. “Because of the misleading, defamatory, denigrating and outrageous statements recently made by Andersen Tax to the media and to our clients and contacts, we have no other choice than respond publicly and in the strongest terms,” read a LinkedIn post by French businessman Stéphane Laffont-Réveilhac, who identified himself as global managing partner of Arthur Andersen. He contended, “We are the sole owners of the worldwide rights on the Arthur Andersen and Andersen brands, slogans and logos.”

He went on to say that Arthur Andersen professionals are proud to have nothing to do with Andersen Tax. “Such behavior is clearly contrary to the Arthur Andersen values and shows that these individuals on the rope are panicked and unscrupulous. They are blinded by their ego, arrogance, lies and greed.”

Arthur Andersen, once a Big 5 firm with a sterling reputation, surrendered its license to practice as a CPA firm in 2002 after it was found guilty to criminal charges relating to audits of the energy giant Enron. Former partners founded Wealth & Tax Advisory Services (WTAS), and had reportedly transitioned 92% of its clients to the new firm, added seven new managing directors and increased its client base by 20% in the first year.

In 2014, WTAS announced that it had acquired the legal rights to use the Andersen name and changed WTAS to Andersen Tax, which has about 1,000 employees in 19 U.S. cities and a presence abroad.

On March 1 though, Laffont-Réveilhac wrote, “Arthur Andersen is reconstituted, with 26 offices on five continents and in 16 countries. Arthur Andersen encompasses offices in the following countries and states: United States of America (Chicago, Houston, New York, San Francisco), Europe (Cyprus, France, Greece), India, Brazil, the Middle East (Saudi Arabia, Bahrain, Dubai, Kuwait, Lebanon, Oman, Qatar), Egypt, Indonesia and Nepal.”

He said that more than 200 firms had applied to become affiliates since last June.  “In each country, we are setting up an inter-professional member firm with high-quality players who are fully up to meeting the current needs of clients with a focus on a vision of the future, while maintaining the spirit and historical values of our historic firm founded in 1913 in Chicago,” Laffont-Réveilhac said in a statement that day.

“They are not affiliated and do not have any rights to the name,” Andersen Tax CEO Mark Vorsatz said in a March 2 email, Accounting Today reported. “We purchased the rights to the Andersen brand in the U.S. and worldwide and have filed trademarks in over 50 jurisdictions. We have filed an action against them in France to require that they cease and desist use of the name. Also, to the best of our knowledge, they have no viable business in any locations.”

Andersen Tax’s in-house counsel, Oscar Alcantara, said his firm filed an action in Paris last October against the group calling itself Arthur Andersen for trademark infringement and to cancel any other filings by them, Accounting Today reported. Response is due March 17.

Andersen Tax officials say their firm represents the Arthur Andersen name and legacy better than the other firm, which they say has only one firm alumna.

“On our side of the table what we have is a large group of people who truly represent the legacy of Arthur Andersen, individuals who had been with the organization for decades and who truly bear the goodwill of that culture,” Alcantara said. Twenty-three former partners formed WTAS in 2002.

Arthur Andersen says it will hold a press conference in New York March 15 to answer questions.

Professor: Sarbanes-Oxley Has Not Decreased Accounting Misbehavior

In the wake of President Donald Trump’s executive order to roll back the Dodd-Frank Act, another set of financial regulations could face scrutiny in Washington, D.C.

In 2002, Congress passed the Sarbanes-Oxley Act in response to a number of high-profile accounting scandals at Enron and Worldcom, which left thousands of employees and investors with gutted retirement funds.

Since the implementation Sarbanes-Oxley nearly 15 years ago, however, the continuously increasing rates of accounting class action litigation in recent years indicates that accounting misbehavior does not seem to have decreased, writes Maya Thevenot, an associate professor at Florida Atlantic University’s School of Business, in a press release.

Thevenot, who is the Stone Fellow in the School of Accounting at the university, says that despite the apparent decrease in the number of restatements since the Sarbanes-Oxley Act, the SEC took a major step in fighting fraud with the formation of the Financial Reporting and Audit Task Force in 2013. The task force takes proactive steps to identify companies to investigate for potential accounting violations. As a result, the number of SEC enforcement actions involving accounting issues rose.

SEC Chair Mary Jo White, in a speech last year, reinforced the commission’s focus on accounting fraud. She cited continued “instances of public companies and their senior executives manipulating their accounting to meet various expectations and projections” and indicated that the focus on fraud would likely expand. As a result, recent years have been marked by record-breaking numbers of SEC enforcement actions alleging financial violations, Thevenot writes.

Overall, it appears that managers’ accounting manipulations have persisted over the years but discovery rates have likely increased due to the SEC’s sustained focus and proactive actions to unveil fraud. The increase in SEC actions has had significant implications for private litigation, which also have increased in recent years, according to Cornerstone Research.

Business groups would like to relax the Sarbanes-Oxley rule mandating public firms to hire outside accounting firms to attest that their internal controls are effective in preventing fraud. “All eyes are on Washington, D.C. to see if they get their wish,” says Thevenot.

Chapter Closes in Novelist’s Suit Against Anchin

An eight-year legal dispute between a crime novelist and Anchin Block & Anchin of New York (FY15 net revenue of $97 million) has ended.

According to a statement from MP Frank Schettino, the firm has “amicably resolved the dispute with Patricia Cornwell.”

Cornwell, known for her novels featuring medical examiner Kay Scarpetta, sued the firm in 2009 for negligence and breach of contract, asserting that the firm and former principal Evan Snapper mismanaged her finances, causing the loss of $89 million. A federal jury in 2013 ordered the firm to pay $51 million, but a District Court judge set aside the verdict soon afterward, barring a number of core claims by Cornwell and her spouse Staci Gruber.

An appeals court last year allowed a new trial, which was avoided by the Jan. 17 settlement. Cornwell’s attorney, Joan Lukey, said in a statement that Cornwell will be dismissing the pending litigation in Boston, the Boston Globe reported.