A unit of US manufacturer Caterpillar has admitted it cheated customers by performing unnecessary repairs to railcars and dumping parts into the ocean to hide evidence.
United Industries, part of Caterpillar’s Progress Rail Services unit, pleaded guilty to dumping parts into the ocean and agreed to pay a criminal fine of $5m as well as a total of $20m in restitution to three railcar-owning companies— TTX, Greenbrier and the Pacer International unit of XPO Logistics.
The US Attorney’s office in Los Angeles said the Illinois-based manufacturing giant entered its guilty plea in the US District Court for the Central District of California last week.
Caterpillar said it had “taken corrective action against employees involved in this matter” and had “enhanced its compliance program” but stated that it so far, it had not found any “safety issues related to the matter”.
Mark Williams, an assistant US attorney in Los Angeles, said the said the “scam” had occurred in 2008 and 2009 but the cases dragged on for years because of the complexity of the investigation and calculations regarding restitution to the railcar owners.
Caterpillar only disclosed the criminal investigation to shareholders in November 2013.
At the time of the offence, United Industries operated a repair facility at the Port of Long Beach. It duties included inspecting railcars passing through the Southern California port to see whether any parts needed to be repaired or replaced under industry guidelines.
Caterpillar said United Industries employees told federal investigators that they were encouraged by certain supervisors to smash brake parts with hammers, gouge wheels with chisels and yank handles loose in order to increase revenue by making repairs. Other unnecessary repairs were randomly selected and performed without inspection.
The United Industries employees then threw parts, including roof liners, roller bearing adapters and brake shoes into the harbour at the Port of Long Beach to hide evidence from inspectors with the Federal Railroad Administration and Association of American Railroads.
After getting a tip from a whistle blower, divers working for port police later located the discarded parts on the ocean floor near the repair facilities.
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 a federal law by dumping refuse in navigable waters.