American Justice: The Criminal (?) Enterprise Known as the Koch Brothers and Koch Industries
A History of One of the Most Corrupt Business in America
I WRITE THAT SUBTITLE KNOWING THAT IT COULD COME BACK TO BITE ME by the subjects of this hub, Koch Industries as well as Charles and David Koch, aka the Koch Brothers. I say that because they do not take well criticism, especially criticism based of facts, The Kochs, et al, tend, as history shows, to strike back hard. While my following is rather small and the chances that this may come to their notice is minimal, I am still taking a chance that my life may become hell as a result of this hub.
I am currently (Feb 2016) writing a Hub on money in politics based on the research of Jane Mayer in her book Dark Money, but am taking a quick break to develop this Hub on one aspect of her extremely well documented book ... the civil and criminal misbehavior of Charles Koch and his source of money, Koch Industries owned by himself and his brother, David Koch. I got about a 1/3rd of the way through Dark Money when I came to a chapter devoted to the malfeasance of the Kochs and their business enterprise. Dark Money itself is about how a few billionaires have constructed this largely secret network of tax deductible foundations whose sole purpose is to essentially overthrow our system of government and reconstruct it to reflect there radical libertarian views (they make Ron and Rand Paul look like Lefties).
The scope of the criminal behavior described in this chapter left me so upset that I knew I had to write about it before completing the more general analysis about money in politics.
Koch Industries Knows No Limits to Their Depravity
WHAT I LEARNED IN CHAPTER 4 OF JANE MAYER'S BOOK DARK MONEY left me flabbergasted as to the extent of what, if it had been a person (oh wait, corporations are people, aren't they, except when they do wrong), it would have been sentenced to life without parole; their "crimes" were that bad. Their attempts to cover it up, intimidate witnesses and prosecutors, if proven beyond a reasonable doubt, were high crimes as well ... of the most insidious sort. In short, Koch Industries and the Koch Brothers are not nice by any stretch of the imagination.
This hub is a synopsis of what Jane Mayer documented in her book, an outline if you will. All credit as to the factual content as well as the strong circumstantial evidence goes to her excellent research. I just what to make it visible to my readers in hopes they will pursue it more by reading her astonishing and, to me, depressing rendition of corporate bad behavior gone wild. As any of you who read me regularly know, I am no fan of Corporate America (as opposed to small business America) due to their constant, ubiquitous rip-off of their consumers and low-level employees.
I must make this distinction between scales of business. Small business plays by regulated free-market rules and therefore, normally by choice, are honest hard working entrepreneurs who treat their employees fairly and aren't trying to deliver the poorest product for the most money they can get away with. Conversely, Corporate America is largely above the law where their great wealth allows them to flout the law (it's cheaper to pay fines than do the right thing) and do pretty much what their general lack of ethics and morality allow them to do.
A CARICATURE BY THE UK OF CHARLES AND DAVID KOCH
KOCH INDUSTRIES IS THE LARGEST PRIVATELY-HELD ENERGY COMPANY in the United States. They have subsidiaries involved in manufacturing, trading, and investments. Companies owned by Koch Industries include, but are not limited to, Invista, Georgia-Pacific, Molex, Flint Hills Resources (Pine Bend Refinery), Koch Pipeline, Koch Fertilizer, Koch Minerals, and Matador Cattle Company. It is involved in the manufacturing, refining, and distribution of petroleum, chemicals, energy, fiber, intermediates and polymers, minerals, fertilizers, pulp and paper, chemical technology equipment, ranching, finance, commodities trading, and many other ventures and investments. The firm employs about 60,000 people in the United States and another 40,000 in 59 other countries. Koch Industries' annual revenues of $115 billion, with a 'B'.
Court documents show many of these Koch companies were involved in a pattern of flagrantly ignoring multiple pollution controls (needless and harmful regulations in their view), fraud, intimidation, and employee abuse.
So, what is it exactly that Koch Industries and its owners did wrong? A lot !!
1940 - That is when it began
KOCH INDUSTRIES BEGAN ITS LIFE IN 1940 AS WOOD RIVER OIL AND REFINING COMPANY founded by Jeff Koch, father of Charles, David, Bill, Frederick, and Elizabeth (Charles and David are estranged from the rest of the family). In 1946, it was renamed Rock Island Oil & Refining Company after acquiring a refinery by that name. In 1968, several years after Fred Koch died, the company was renamed yet again to Koch Industries Inc., to honor the founder.
Before there was Wood River, there was Winkler-Koch, founded in 1925, Fred's first company founded to take advantage of a new oil refining process much better than anything currently available. In true free-market fashion, the much bigger and older oil companies, sensing a threat from this new start-up quickly slapped it down claiming patent infringements. Many years later, Koch finally won in court. In the mean time, to keep things afloat, he took his process to England and started building refineries there, then for the Soviet Union, and finally for Hitler. Had Koch not built the German refineries, Hitler would have had no air force with which to bomb England and Americans who entered the war against Germany.
Flash-forward to 1977 where we will begin our story, 11 years after Charles Koch became President and Chairman of Koch Industries, Inc.
1974 - Donald Carlson
IN 1974, DONALD CARLSON BEGAN TO WORK FOR KOCH AND ALSO BEGAN TO DIE, courtesy of Koch Refining Company at their Pine Bend Refinery in Rosemount, Minnesota. Bull, which was Donald's nickname worked 12 and 16-hour shifts without complaint. He liked what he did, which was to hand-scrape tanks that has contained leaded gasoline, measured tank levels where the built up pressure of toxic gases would blow his safety helmet off, or clean up spills that were so deep sometimes, they burned his calves. Bull, however, wasn't aware of the hazardous environment he worked in; "They [Koch] didn't tell me anything, and I didn't know anything", Bull said later (121).
One of the chemicals he frequently came in unprotected contact with was benzene. Unfortunately for Bull, Koch Company didn't tell him that since 1928 it was suspected, then known that benzene was a human carcinogenic! In 1995, Carlson became to sick to work; and that is when the trouble really began.
in 1974, OSHA (one of the many government organizations the libertarian Koch's want to sweep into a dust bin) issued several regulations regarding employer responsibilities to monitor and notify employees regarding complications from working with benzene and other hazardous substances. Koch Company picked and chose which of the these regulations they wanted to follow. For example, they did blood tests as required, but didn't report the results to the employee; even when Bull's blood count became abnormal in 1990.
They didn't tell him in 1991, 1992, and 1993. They finally told him in 1994, but it was too late. Bull worked to the summer of 1995, but even the massive blood transfusions wasn't enough to keep in on the job. His reward ... being fired with six-months wages. Carlson filed for workers' compensation claiming his illness was work related. Koch disagreed (and thought that OSHA and workers' comp was socialism gone wild).
The workers' compensation benefits would have covered his medical bills and continued dependency for his wife and daughter. According to Mrs. Calrson (122), "The doctor couldn't believe he was never put on workmen's comp years ago!" and "We were just naive. We didn't think people would actually let you die. We thought 'they help you, don't they?'" Donald "Bull" Carlson died in 1997 of leukemia; he was 55 and died thinking "if you worked hard and did a good job, you would get rewarded." Clearly libertarian Charles Koch didn't.
Mrs Carlson pressed her claim against Koch Industries. They offered her crumbs on the stipulation it would not be considered compensation for work related injuries; she demurred. On the eve of the trial, the Koch's caved and settled on her terms, although a confidentiality agreement sealed the records.
The settlement amount is unknown.
1996 - Sally Barnes-Soliz
SALLY BARNES-SOLIZ WAS NOT KILLED BY KOCH INDUSTRIES, in fact she appears to have survived quite well while setting in motion, not intentional I am sure, a series of events which has caused Koch Industries many large headaches and uncovered unbelievable anti-social behavior far beyond most people's imagination! In April 1996, Barnes-Soliz, hired by Koch Industries as an environmental technician, knocked on the door in Corpus Christi, TX, of government regulators to talk about what she found out regarding a Koch refinery in the area; she was a whistle blower with a very loud whistle. She wasn't a disgruntled employee, as the Koch's claimed, but one who they should have listened to.
The benzene which killed Donald Carlson in 1997, is both a gas and a liquid. In this vignette, it is the gas that is causing the problem while in a later one, it is liquid benzene. Because of her, Koch came face-to-face with the 1995 federal regulation requiring reductions in emissions from benzene (123), regulations which Koch believes are dangerous to the welfare of America (meaning his bottom line). What the issue Barnes-Soliz discovered is the Corpus Christi refinery was "hemorrhaging benzene into the atmosphere" like a sieve
Koch Industries directed Barnes-Soliz look into the benzene problem hoping to prove the naysayers wrong when they say there is a serious problem. She couldn't, try as she might and no matter how many times she ran the numbers, it showed the refinery was releasing 15-times the legal amount as set by the Clean Air Act. There were many meetings regarding her findings with great pressure to change the results; she wouldn't. When she found out Koch had submitted falsified information to the Texas environmental regulatory agencies. Koch told the State regulators that the benzene emissions was 1/149th the amount Barnes-Soliz analysis found! That is when she took a walk to the Texas authorities.
As a result, Koch Industries was slapped with a 97-count indictment on September 20, 2000 charging them with, among many other things, covering up the discharge of 91 metric tons of benzene. The potential fines amounted to $352 million and four Koch employees faced criminal charges.
Koch obfuscated and obstructed the prosecution, as is their habit, but nevertheless paid $20 million in fines and restitution Corpus Christi and they dropped the charges against the employees; Koch tried to spin this as a refutation of the charges. The Justice Department, however, countered that Koch Industries pleaded guilty to "an orchestrated scheme to conceal benzene emissions - a known carcinogen" - from regulators and the community and "Environmental crimes are almost always motivated by economics and arrogance, and in the Koch case there was a healthy dose of both". (125)
The finale was that Koch shuffled Barnes-Soliz off to an empty office with nothing to do. She finally quit and sued the company for harassment to which they settled for an undisclosed amount in 1999.
1976 - Carnell Green
KOCH AND HIS INDUSTRIES REACHED ANOTHER LEVEL OF MALFEASANCE when they sent sort-of fake FBI agents to intimidate one Carnell Green, a low-level employee at Koch Industries in Louisiana. His job was ..... and he had a story to tell.
But first let's talk about Bill Koch and his long running, acrimonious feud with brothers Charles and David. They have had many personal and court battles in the past and Bill was attempting to get dirt on his brothers. So, in 1998 and again in 1999 he told Bill's investigators his tale of woe when he worked for the Koch's from 1976 - 1986.
What Koch Industries told Green to do was sweep mercury residue resulting from his duties as a gas meter serviceman "out the door and on to the ground". Not only that, he was directed to dump meters, which contained about a quart of mercury into dumpsters or to take that mercury and pour it into the sink, just as he saw his supervisor was doing!
In case you didn't know, mercury is been a known to be extremely toxic and ultimately deadly since the 1930s, but has been suspected since the late 1800s. In 1990, the Clean Air Act, bitterly opposed by Koch and his fellow industrialists, severely limited its use and heavily regulated it.
Consequently, in 1976, when Green began to work for Koch Industries, the science behind mercury poisoning was well known. Yet, Koch didn't care. And after 1990, began breaking the law regarding mercury in a big way, if Carnell Green is to be believed. When Carnell got home, little mercury balls simply rolled off of and out of his clothes, poisoning his family in the process; the recommended process to decontaminate clothes is to dispose of them in biohazard bags, you can't clean them enough!
In 1996, the year he was fired, Green attended a hazardous chemical class. After learning what was really happening to him, he warned his supervisors of the problem. This resulted in 1) his supervisor telling him not to talk about it and 2) being visited by "FBI" Special Agent Larry M. Moorman (actually a Koch employee) and told he would be arrested and put in jail if he said anything and didn't retract what he had already said. If fact, fearing imprisonment, he signed a statement to that effect. (126) Nevertheless, he filed an OSHA complaint and was fired for his effort.
Since the two statements made to investigators were for the benefit of Bill Koch and not law enforcement, it is unknown to me what became of it, or the OSHA complaint.
That Was a Taste ... But Wait, There's More After You Give Your Opinion
From the Hub and Everything else you have heard ...
1995 - Federal Prosecutor Angela O'Connell
BEHIND THE SCENES, WHILE THE KOCH'S WHERE STAVING OFF lawsuits at the state and civil level, the federal government had started a long-running, multi-state investigation of Charles and David Koch and their various industries for very serious violations of a host of environmental laws. Angela O'Connell was the lead prosecutor in this endeavor and believes strongly she felt the personal wrath of these billionaires. What she was investigating was "massive leaking of millions of gallons of oil from its pipelines and storage facilities over six states! They documented over 300 oil spills over the last five years, including one 100,000-gallon crude oil that left a 12-mile-long slick in the bay off Corpus Christi, not far from where the Koch refinery was located." (126); the Justice Department sued Koch Industries in 1995 for violation of the Clean Air Act.
O'Connell stated that Koch Industries as "unlike any other oil companies she has ever dealt with" (130) over her twenty-five-year career with Justice! She is convinced the Koch's went to extraordinary lengths to scare or have her removed from the case; something they became very good at. Koch Industries, in 1983, hired U.S. Secret Service David Nicastro (130) to assist in its security operations. In 1994, Nicastro formed his own company and hired out his investigative skills to Koch Industries. Nicastro admitted that from 1995 to 2000 he "worked on different projects" involving litigation they were in. Helping him was ex-FBI agent Charles Dickey.
Even today, she recounts how they attacked her reputation, rummaged through her trash, had her phone bugged, and even lobbied the head of the EPA, Carol Browner, directly to have her removed from the case. It didn't work. On January 13, 2000, Koch Industries agreed to pay the largest fine up to that point, $30 million for "egregious" violations of the Clean Water Act.
Contemporaneously, with Koch's settlement with the Justice Department, their Pine River refinery pleaded guilty to more Clean Air Act violations to the tune of another $8 million for "dumping a million gallons of ammonia-contaminated waste water onto the ground, along with negligently spilling 600,000 gallons of fuel into a protected wet-lands. Earlier, the same refinery paid $6.9 million to the Minnesota Pollution Control Agency for the same violations.
All of this, however, pales in comparison to the next story which, in my opinion, qualifies for negligent homicide.
Danielle Smalley Foundation
Was Koch Industries Guilty of Negligent Homicide
THAT IS A VERY SERIOUS QUESTION TO ASK (dangerous too), BUT as you read this next true story, I suspect (hope) you may think it was. Homicide means somebody died (in this case two people) as the result of action or inaction of another. "Negligent Homicide" is where the death was not intentional but as a result negligent behavior of another. I maintain, based on the information in Dark Money,
On August 24, 1996, in Lively, TX, Danielle Smalley and Jason Stone were first blown up and then burned to death as a result of a leaky butane pipeline owned by non-other than Koch Industries. It came to pass this way.
On that fateful day Danielle and Jason were at her father's house planning her farewell party after having just graduated high school before going off to college. During this time, they, as well as her father Danny Smalley, began smelling a nauseating gassy odor. They could not find the source of this smell and because there was no phone in the house, Danielle and Jason get in her father's truck to drive to a neighbor to call to report of a gas leak ... they never made it. Danielle began driving but the truck stalled a few hundred yards away. By turning on the ignition one more time, she ignited an invisible cloud of butane gas that had escaped a corroded Koch Industries' pipeline.
The resulting explosion and fireball burned Danielle and Jason alive.
Not denying guilt, Koch Industries offered Danny Smalley some money to drop the wrongful death lawsuit. As reported in Dark Money (129), "Like Doreen Carlson, however, the surviving family member wanted more than cash." Koch Industries then mounted a huge battle bringing in a host of lawyers. In addition, the Koch's hired a private investigator to surveil Smalley and apparently bug the offices of his lawyer, Ted Lyon. The latter fact came to light when Lyon, feeling his office was bugged, hired a security team to find out; they found tiny transmitters in his office! (This brings to mind the activities that federal Prosecutor O'Connell believed had happened to her by the Koch's.)
During the investigations preceding the trial, the following was found:
- The National Transportation Safety Board (NTSB) found that Koch Pipeline Company, the specific Koch unit responsible for the pipeline, knew of the massive corrosion problem
- The NTSB determined that the company did nothing about it
- The NTSB determined that the company did not warn the 40 or so families who were at risk
- Edward Ziegler, a certified expert in such matters, found that the explosion resulted from "a total failure of a company to follow the regulations, keep their pipelines safe and operate it as the regulations require"(129)
- The pipelines in question had not been used for three years but, in order to make an annual profit of $7 million annually, reopened them with minimal maintenance
- Kenoth Whistine, a former Koch employee, admitted in a deposition that when he told his boss about how dangerous the corroded pipelines were, his boss said that it would be cheaper to payoff the damages from a lawsuit and make the repairs.
The resulting jury verdict, on October 21, 1999, three long years later, found Koch Industries of negligence with malice because it had known about the hazard their pipelines presented. Smalley had asked for $100 million, but the jury, expressing its apparent disgust with Koch Industries, awarded the largest wrongful death amount at that time of $296 million!
Senator Don Nickles - Did He Play a Major Role in the Koch's Thwarting Justice?
The Koch's Buy a Grand Jury Verdict
THIS CASE AGAINST KOCH INDUSTRIES WAS YEARS IN THE MAKING by both Congress and Federal prosecutors. Everybody (but the Koch's) thought it was rock-solid. But, as we will see, the Koch brothers bought themselves an innocent verdict from the Grand Jury.
In 1988, the Senate began to investigate Koch Industries for stealing tens of millions of dollars worth of oil from Native American tribal lands. In 1989, they released a "scathing" report (130) detailing how the Koch's did this through mis-measuring the amount taken from under the tribes lands.
In a rare stroke of luck, the investigators were able to force Charles Koch to be deposed where, under oath, he admitted to stealing $32 million over three years (he said it is was "accidental") As rebuttal, the committee produced evidence that 1) other oil companies have no problem measuring the amount of oil extracted properly and 2) it was the other oil companies who turned Koch in!
Also resulting from the investigation was what was to become a familiar theme from the Koch's when they are investigated, which was going to be often; they intimidate those investigating them. Richard Elroy, the lead FBI investigator in this case. Elroy had conducted similar corruption investigations, sometimes with the Mafia being the target. But with the Koch's, it was the first time he felt he, and other investigators, were under personal attack by unseen forces.
- On one occasions, think he was being followed, suddenly stopped his car and approached the car he thought was tailing him. It turned out to be a private investigator who worked for Koch Industries (131)
- Another investigator found that a Koch employee tried to get "dirt" on him by questioning his former wife
- The committee's chief counsel, Kenneth Ballen, was certain one of his assistance had been compromised and had been assigned to get "dirt" on him as well
- Wick Sollers, an assistant U.S. attorney from Baltimore, who was also on the case, reported that the Koch's sent various people, including Senator Don Nickles (R-OK), to try to stop the investigation.
- Sollers' staff reported that unknown persons had started sifting through their garbage, apparently looking for more dirt
- Sollers himself discussed how someone had sent his mentor an anonymous package full of news clippings and court documents meant to smear his reputation (132)
- Christopher Tucker, a witness about the Koch's practice of under-reporting the amount of oil extracted, found his character being assassinated in the newspapers as being a "perjurer". Further, he was denounced in a letter by four Senators. Tucker was also tipped off by his landlady that "men in business suits" had hauled away his garbage.
After all of this, the Senate Select Committee on Indian Affairs released an extremely damning report on the Koch's criminal behavior. BUT, the story doesn't end here.
FBI Agent Elroy referred the case to the U.S. attorney in Oklahoma as a potential criminal case against Koch Industries. The U.S. attorney took the case to a grand jury who, after eighteen months of deliberation (an extraordinarily long time), cleared the company!! But why?
Because the Koch's launched a strategy to buy political influence to gain the verdict they wanted. (internal company papers, 133). What did the Koch's do?
- Made "donations" to many key politicians, including Senator Nickles
- Sen. Nickles recommended a new U.S. attorney be appointed for Oklahoma City to oversee the grand jury investigation; his recommendation by-passed the head of the criminal division and chose his protege, Timothy Leonard, a former Republican state senator with no history in criminal law.
- Leonard's family, by the way, had financial interests in Koch oil wells and, as a result, there were calls for his recusal for obvious reasons. The Republican Justice Department granted him a "waiver", however!
- Nancy Jones, the assistant U.S. attorney who WAS handling the grand jury probe carefully responded when asked later if there was political pressure brought to bear to end the investigation; she said "You can say this, the man who was passed over to be the U.S. attorney for the case was a liberal Democrat from out of state, and the one they appointed was a Republican with no federal, criminal, OR trial experience."
- Elroy was, as Meyer puts it, "less circumspect". He thought that "Nickles put the kibosh on the prosecution there. He got involved in the appointment of the U.S. attorney. He was getting a tremendous amount of support from Koch. He was their man. He was the best senator money could buy." (Nickles swore he didn't even know there was an investigation going on!!; 133)
- Finally, the investigation was hindered by the disappearance of key Koch Industry documents. Nancy Jones, while still in charge, attempted to get corroborating documents to bolster the Senate's report. She was told they had simply "vanished"! Jones finally gave up and resigned in disgust.
We are still not done yet. Bill Koch, who had a falling out with his brothers, Charles and David, of monumental proportions, upon hearing the disappointing grand jury finding, filed a "whistle-blower" lawsuit against Koch Industries under the False Claims Act, accusing the company of stealing oil from government lands; the same case the grand jury had, but requiring a lower standard of proof. Richard Elroy was still on the case, but this time as a PI for Bill Koch; he had since retired from the FBI. This new investigation proceeded as the old one did, including the intimidation by Charles and David Koch (although now it was personal and the government wasn't involved.
I will leave to the reader to peruse the gory, and very interesting details, by reading pages 134 - 138 of Dark Money. But, some highlights are:
- In 1999, when Bill Koch's charges went to trial, he claimed that the Koch Industries engaged in a "deliberate pattern of fraud."
- Multiple former Koch employee's claimed something to the effect "I had to do what they [Koch] said to do or I wouldn't have a job."; referring to under reporting oil and covering up
- Phil Dubose, 27-year Koch employee was a "gauger", he measured oil, and oversaw 4,000 miles of Koch pipelines. He testified about the "Koch Method"; which was "They ... mis-measuring crude oil on Indian reservations as they did all over the U.S. If you bought crude, you'd shorten the gauge. ... They had meters in the field. They'd recalibrate them. ... You did it (cheating) different ways. ... If we sold a barge of 1,500 barrels, you would say it was 2,000, It involved ... their thumb on the scale. ..."
- There was much more damning evidence
On December 23, 1999, the Koch Industries were found guilty of a staggering 24,587 false claims to the government. In the end, Koch Industries paid a mere $25 million in fines (of which $7 million went to Bill, along with his legal costs).
The Cost Of Crime (which doesn't come close to the Cost to the Environment)
1974 - 1997
The Death of Donald Carlson
1976 - 1996
Carnell Green and Mercury Poisoning
1995 - 2000
Poisoning Corpus Christi, TX - 1
$30 million in fines
1996 - 1999
Poisoning Corpus Christi, TX - 2
$20 million in fines & restitution plus an unknown settlement for the whistle-blowe
1996 - 2000
$15 million in state and federal fines
1996 - 1999
Killing Smalley and Stone
1986 - 1999
Cheating Native Americans
The Koch's Change Their Ways ... Sort Of.
IN THE EARLY 2000s, AFTER THIS LONG STRING OF COURT LOSSES, the Koch's appeared to turn a new leaf; according to Koch spokesperson Melissa Cohlmia ... "the Kochs' serious legal losses were a learning experience ..."(138). In fact, Koch Industries did improve their environmental record ... somewhat. Having said that, in 2010, the Economy Research Council of the University of Massachusetts (Amhurst) reported that Koch Industries was one of the top ten air polluters in America. The EPA piled on in 2012 showing that Koch Industries was the top producer of toxic waste in the country as well ... #1!
Did Charles Koch understand what he did was wrong? Not on your life. He wrote in his 2007 book, The Science of Success, that his mistake wasn't polluting the Earth and helping uncounted people to an early death, --- no --- it was "We were caught unprepared by the rapid increase in regulation" and that "While business was becoming increasingly regulate, we kept thinking and acting as if we lived in a pure market economy." What Charles Koch, and those who believe the way he does, don't understand is that it was "Pure Market Economy" that got Danielle Smalley and Jason Stone killed.