Bloomberg’s Bombshell Report on “The Koch Method”: How to Steal, Cheat and Lie Your Way to the Top

Price fixing; bribery; safety failures; investigation cover-ups: These are just a normal part of business at Koch Industries, according to a detailed investigative report released yesterday by Bloomberg News.

Koch Industries — the biggest funder of climate science denial and anti-clean energy causes — has a long history of illegal or borderline-illegal behavior that has allowed it to become a major global energy player:

For six decades around the world, Koch Industries has blazed a path to riches — in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.

Koch Industries is a diversified energy, chemicals and textiles manufacturing company with over 50,000 employees in the U.S. As we’ve detailed numerous times on this site, the company has been a leading backer of sham studies, fake front-groups and television attack ads against environmental regulations, renewable energy promotion and carbon-reduction policies.

The pollutocrat Koch Brothers are now worth $50 Billion and are poised to become the richest men in America, as Climate Progress reported last week. The Koch Industries’ involvement in stopping progress on environmental issues is well documented. But this latest expose details exactly how the Kochs made their money: Numerous incidents over the company’s history show how far the company will go to get what it wants. It would make the Robber Barons proud.

The Bloomberg story highlights a series of internal decisions by company executives to circumvent the law and intimidate employees who raised concerns about the company’s actions. One former Koch Industries employee called the practices “The Koch Method” — with managers showing subordinates “how to steal and cheat.”

Koch Industries units have also rigged prices with competitors, lied to regulators and repeatedly run afoul of environmental regulations, resulting in five criminal convictions since 1999 in the U.S. and Canada.

The company’s actions range from toxic dumping to illegal trade with Iran. When reading through the vast list of transgressions, it’s no wonder Charles and David Koch are so ardently anti-regulation — any sensible government involvement would hurt their business model based on the “Koch Method.”

According to the Bloomberg Story, the Koch Method includes deliberately working around a trade ban with Iran — a country that former Presidents Bill Clinton and George W. Bush have labeled a threat to national security:

Internal company records show that Koch Industries used its foreign subsidiary to sidestep a U.S. trade ban barring American companies from selling materials to Iran. Koch-Glitsch offices in Germany and Italy continued selling to Iran until as recently as 2007, the records show.“Every single chance they had to do business with Iran, or anyone else, they did,” [former employee George] Bentu, 46, says.

U.S. companies have been banned from trading with Iran since 1995, when President Bill Clinton declared it a threat to national security. Iran supports Iraqi militants and Taliban fighters as well as terrorist groups, including Hamas and Hezbollah, according to the U.S. State Department.

Back in the U.S, Koch Industries worked to circumvent environmental regulations, lying to employees and to regulators in the process. In Texas, the company deliberately tried to hide the amount of cancer-causing benzene it was spewing into the air, according to sources involved in the incident:

On Jan. 6, 1995, Koch’s refining unit informed the Texas Natural Resource Conservation Commission, or TNRCC, that it had installed a new anti-pollution device called a Thermatrix that used flameless heat to burn off the benzene. The machine lacked sufficient capacity for the job, Barnes-Soliz says, and refinery workers disconnected it within days.

The refinery was just hemorrhaging benzene into the atmosphere,” she says.

Three months after disconnecting the machine, Koch filed a quarterly report with Texas regulators, while concealing that it had violated the emission rules.

That December, a refinery manager asked Barnes-Soliz to tally the plant’s annual benzene emissions for a report to state regulators, Barnes-Soliz says. She found 91 metric tons of uncontrolled benzene emissions, more than 15 times higher than what the rules allowed.

“There were a lot of meetings to try and get me to change the number,” she says. “It was hard, but I held firm to my convictions.”

Barnes-Soliz’s bosses went around her. On April 8, 1996, Koch reported to Texas regulators that its Corpus Christi plant had uncontrolled emissions of 0.61 metric tons for 1995, or 1/149th the quantity she had found.

“When I saw they had actually falsified that document, I had no recourse but to notify the authorities,” Barnes-Soliz says.

A couple years later, the company was sued by ConocoPhillips for cleaning up toxic waste that had contaminated groundwater at a former dumping site.

The Corpus Christi case was one of a series of challenges Koch Industries faced in the 1990s over environmental issues. In 1997, a company now owned by ConocoPhillips sued Koch for toxic waste dumping at a refinery in Duncan, Oklahoma.

“The record is replete with evidence Koch used unlined ditches, pits and ponds to dispose of hazardous waste at the site,” the appeals court ruled, finding that Koch had tainted groundwater. “The pollution of any Oklahoma waters, including groundwater, has been prohibited by state statute since the early 1900s — well before Koch’s waste disposal activity at the refinery.”

It was also a Koch policy to deliberately lie to customers and the government, said former employees. And this wasn’t just something that happened periodically. According to the Bloomberg story, Koch Industries falsified tens of thousands of claims on Native American reservations around the country:

The investigators caught Koch Oil’s employees falsifying records so that the company would get more crude than it paid for, shortchanging Indian families, Elroy said. Koch’s records showed that the company took 1.95 million barrels of oil it didn’t pay for from 1986 to 1988, according to data compiled by the Senate.

“The theft is widespread and pervasive, and these people are being horribly victimized,” Elroy testified.

Two days before Christmas 1999, the jury delivered the verdict: Koch Industries had made 24,587 false claims in buying oil, underpaying the U.S. government for royalties on Native American land from 1985 to 1989. Koch paid the U.S. $25 million to settle the case in 2001.

From 1999 through 2003, Koch Industries was assessed more than $400 million in fines, penalties and judgments. In December 1999, a civil jury found that Koch Industries had taken oil it didn’t pay for from federal land by mismeasuring the amount of crude it was extracting. Koch paid a $25 million settlement to the U.S.

“The Koch Method is to cheat the producer out of crude oil,” he said.

And that’s not all. Along with selling equipment to a state-sponsor of terror, dumping jet fuel and ammonia-laced wastewater into groundwater and cheating Native Americans out of their oil rights, Koch Industries’ poor management practices contributed directly to the death of two teenagers, according to one former company executive:

While the Koch brothers battled over oil, Koch Industries clashed with regulators over its failure to properly maintain its pipelines. In 1995, the EPA sued the company, saying poor maintenance resulted in corrosion that contributed to hundreds of spills.

The following year, before the EPA case was resolved, a leak in a Koch butane pipeline led to an explosion that killed two teenagers.

“I will tell you Koch Industries is definitely responsible for the death of Danielle Smalley,” Bill Caffey, an executive vice president of the company, testified in a 1999 deposition during Smalley’s lawsuit.

Caffey oversaw pipeline safety at the company. He testified that he thought the pipeline was safe before the explosion. Koch Pipeline Co., the unit that managed the Texas pipeline, knew the line had corroded and didn’t fix it, an investigation by the National Transportation Safety Board concluded in November 1998.

These are only a few of the many “Koch Methods” that Bloomberg highlights in its story.

Much has been written about Koch Industries. Some of these incidents have been extensively reported on. But others, like the secret trading with Iran, are newly documented. Read the whole piece for the full laundry list.

Koch Industries is the engine of the climate-change denial machine. Hopefully, stories like this will allow Americans to get better acquainted with Koch Industries. And when they do, perhaps they’ll have the same reaction as former employees:

“You feel totally betrayed,” Bentu says. “Everything Koch stood for was a lie.”