Koch’s low profile belies political power

Introduction

Koch Industries could be the biggest oil company you have never heard of—unless, that is, you hang around the halls of government in Washington.

Koch Industries (pronounced “coke”) is a huge oil conglomerate controlled by brothers Charles and David Koch, two of the country’s richest men and among the biggest backers of conservative and libertarian causes. With estimated revenue of about $40 billion last year, Koch is bigger than Microsoft, Merrill Lynch and AT&T.

Koch is the leading campaign contributor among oil and gas companies for the 2004 election cycle, giving $587,000 so far. Next came Valero Energy at $568,000.

Since 1998, Koch is the fourth biggest campaign oil and gas industry giver, behind ChevronTexaco, El Paso Corp. and Enron Corp.

Despite its size and political largesse, Koch is able to dodge the limelight because it is privately-held, meaning that nearly all of its business dealings are known primarily only by the company and the Internal Revenue Service. In fact, it is the second largest private company in the country, trailing only food processing giant Cargill.

Koch also prefers to operate in private when it comes to politics and government.

Although it is both a top campaign contributor and spends millions on direct lobbying, Koch’s chief political influence tool is a web of interconnected, right-wing think tanks and advocacy groups funded by foundations controlled and supported by the two Koch brothers.

Among those groups are some of the country’s most prominent conservative and libertarian voices including the Cato Institute, the Reason Foundation, Citizens for a Sound Economy and the Federalist Society. All regularly beat the drum in official Washington for the causes the Koch’s hold dear—minimal government, deregulation, and free market economics.

For the Kochs, conservative and libertarian views are a family tradition. Fred Koch, who founded the company’s predecessor in 1940, helped establish the ultra right-wing John Birch Society.

Some of Koch’s other political activities have been less exotic, but no less controversial.

For example, Charles Koch found himself under investigation by the U.S. Senate for his alleged role in funding so-called “issue ads” that helped conservative Republican congressional candidates in 1996.

Even critics seem awed by the Kochs’ ability to shape policy so effectively without drawing much attention to themselves.

“It’s astounding that so few people have ever heard of a family this rich and powerful and aggressive when it comes to policy and politics,” says Jeff Krehely, deputy director of the National Committee for Responsive Philanthropy, who co-authored a recent study on conservative think tanks, including those funded by the Kochs. “When you talk about Koch, most folks think you are talking about the soft drink company.”

Koch Industries did not respond to repeated phone calls and emails requesting interviews for this report.

David Koch, who ran for vice president on the Libertarian Party ticket in 1980, in an interview with National Journal, has described his philosophy this way: “My overall concept is to minimize the role of government and to maximize the role of the private economy to maximize personal freedoms.”

Navigating Troubled Waters

Koch has had plenty of run-ins with government regulators and other legal problems in recent years. Through it all, the company has shown a remarkable knack for getting criminal charges dropped and huge potential penalties knocked down.

In late 2000—as the Clinton Administration was preparing to leave office—Koch was hit with a 97-count indictment for covering up the discharge of more than 15 times the legal limit of benzene, a carcinogen, from a refinery in Corpus Christi, Texas.

The company faced penalties of more than $350 million. Four Koch employees were also charged individually and faced up to 35 years in prison.

Three months after the Bush administration took office—and just before the lawsuit went to trial—the Justice Department abruptly settled the case. Koch agreed to pay $20 million and plead guilty to a single count of concealment of information. In return, the Justice Department dropped all criminal charges against Koch and the four employees.

In another case, Koch was sued by the government in 1995 and 1997 over a reported 300 oil spills at pipelines owned and operated by the company. Those lawsuits sought from $71 million to $214 million in penalties for the spills, which dumped an estimated three million gallons of oil into lakes and streams in six states.

On January 13, 2000, the government settled that case for $35 million in fines.

The Kochs were also sued by their own brother several years ago in a case where the company was accused of stealing millions of barrels of oil from federal and Native American lands.

Bill Koch, best known for bankrolling a yacht racing team that won the 1992 America’s Cup, and another plaintiff filed the suit under the False Claims Act, which allows private plaintiffs to sue on behalf of the government companies and individuals that are defrauding it. Plaintiffs get to keep a part of any money recovered in a successful suit.

In a settlement of that case in May 2001, the company agreed to pay $25 million to the U.S. government to dismiss charges of false claims estimated at about $170 million in oil purchases on federal and Native American lands. The company had faced potential penalties of $214 million in the case.

Bill Koch and his co-plaintiff shared $7.4 million; Koch told reporters that Koch Industries would also pay his legal fees.

Koch’s Campaign Contributions

All told, Koch and its employees have made about $3.9 million in campaign contributions for national offices since 1998.

By comparison, ChevronTexaco—which had revenue of almost $121 billion last year—topped all oil and gas companies with campaign contributions of about $4.6 million since 1998. ExxonMobil—which with revenue of $242 billion is about six times the size of Koch—gave about $3.8 million.

About 79 percent of Koch’s contributions went to Republican candidates, totaling roughly $3 million for the GOP compared to about $694,000 for Democrats, in transactions where a party affiliation could be identified.

Koch has rained the most campaign cash, almost $121,000, on Rep. Todd Tiahrt, a Republican who represents Wichita, where Koch is headquartered. Next comes Sen. Elizabeth Dole, R-N.C. ($115,000); President George W. Bush ($109,000); Sen. Sam Brownback, R-Kan. ($64,000); and House Majority Leader Tom DeLay, R-Texas ($53,000).

Only one of the top 20 recipients of Koch campaign cash was not a Republican—Democrat Rep. Cal Dooley, who represents the lower San Joaquin Valley in California, got roughly $26,000.

While many donors have given much more in campaign cash to Bush, Koch has not given any money at all to presumptive 2004 Democrat Presidential Candidate John Kerry.

Koch has also discovered the newest trend in campaign financing, so-called 527 committees.

Named after the section of the Internal Revenue Service code under which they’re organized, these political committees can raise unlimited amounts of money to influence elections. They are also allowed to claim tax-exempt status as political committees while at the same time avoiding regulation by state or federal election authorities.

David Koch has given $165,000 to such committees, dividing the money between three Republican groups: the Republican Governor’s Association, Americans for a Republican Majority and the Majority Leader’s Fund.

Koch Industries gave a total $138,200 to 527 committees. Of that amount, $82,200 went to Democratic groups that mostly support moderate and conservative candidates, while $56,000 went to Republican groups.

Koch Industries has spent another $2.4 million* lobbying* on more than 50 pieces of legislation before Congress, helping shape the debate on everything from limiting class action lawsuits to repealing the estate tax.

When You Lose, Change the Rules

Koch has also shown a remarkable ability to get rid of or modify environmental policies and other government rules it doesn’t like.

After facing the spate of government lawsuits brought by the Clinton Administration, Koch cranked up its policy influence machine to gut sections of federal environmental laws causing the company problems.

Koch’s primary weapon in that battle was—and remains—the cadre of think tanks and other advocacy groups it finances. The brothers or their representatives usually sit on their boards, taking a hands-on approach to make sure the groups push the company’s interests.

All of those groups are libertarian or conservative, pushing heavily for deregulation of industries and minimal government. They are also highly effective, particularly since Republicans took over the White House and Congress.

The largest recipient of the Koch’s policy influence grants is George Mason University, which has received more than $23 million from the family’s foundations between 1985 and 2002, according to the National Committee for Responsive Philanthropy.

The Fairfax, Va.-based school hosts several Koch funded institutes and think tanks. Richard Fink, a director and executive vice president at Koch, serves on the university’s board of visitors. An economics professor at the university, he helped found another Koch-funded think tank called Citizens for a Sound Economy in the mid-1980s.

One of the groups housed at GMU is the Institute for Humane Studies, which offers scholarships to students interested in libertarian and free-market ideas.

Charles Koch has provided major funding for this group and the institute’s scholarships are named for him. The institute’s outstanding alumni award is also named for him.

On its Web site, the institute says its “perspective is that individual well-being, prosperity, and social harmony” are fostered by “as much liberty as possible” and “as little government as necessary.”

Another Koch group housed at GMU is the Mercatus Center.

Koch family money was used to support Mercatus in the mid-1980s and still finances the organization today. Charles Koch and Richard Fink are on the Mercatus board of directors.

Situated at GMU’s Law School in Arlington, Va., Mercatus defines itself as “an education, research and outreach organization.”

“Outreach” in Mercatus’s case includes an intense lobbying blitz of the federal government, including Capitol Hill breakfasts and luncheons hosted by deregulation scholars.

Mercatus has been effective in its political goals—and those of Koch Industries.

In a December 2001 report, the White House’s Office of Management and Budget singled out eight major Environmental Protection Agency rules for review. Five of them, including a linchpin of the Clean Air Act called the New Source Review, came from public interest comments filed by the group.

John Graham, once an advisory board member of the Mercatus Center, is now a senior OMB official. His office has been particularly receptive to Mercatus’s public comments.

According to a recent report from the Government Accountability Office, the think tank submitted more comments than any other organization for OMB’s review. OMB marked 23 suggestions as “high priority,” the majority of which were submitted by Mercatus, essentially guaranteeing their passage into White House policy.

The Kochs also control or hold substantial sway at many of the country’s other leading right-wing and libertarian advocacy groups.

Among them:

• The Cato Institute. Charles Koch was a co-founder of this libertarian think tank in 1977. Koch foundations have helped fund Cato since then. David Koch is on the board of directors of Cato.
• Tax Foundation. Koch group money rescued this financially-troubled think tank in 1989. Charles Koch received the group’s Distinguished Service Award in 2000.
• Institute for Justice. Charles Koch provided the seed money to start this libertarian legal foundation in 1991 and the brothers have provided additional funding since then.
• Foundation for Research on Economics & the Environment. Koch family foundation money provides significant funding for this group, which holds free seminars for federal judges at its ranch near Big Sky, Mont.
• Federalist Society. Koch provides substantial funding to this group which says its purpose is to create a “conservative and libertarian intellectual network that extends to all levels of the legal community.”

Charles and David Koch practice an economic philosophy at the company dubbed market-based management, which is based on the premise that societies which encourage entrepreneurship and individual responsibility will create vast wealth.

The brothers have made no secret that they feel such principles should be adopted by government and society at large, and have spent millions of dollars of their money to help make it happen.

David Koch says he supports the think tanks and advocacy groups to achieve the goals of limiting the role of government and maximizing the private sector to maximize personal freedoms.

“I am trying to support different approaches to achieve those objectives,” he told the National Journal. “It’s almost like an investor investing in a whole variety of companies.”

Incestuous Relationships

The think tank that appears to have the most incestuous relationship with Koch is the Washington-based Citizens for a Sound Economy.

CSE was founded in 1984 by Charles and David Koch and Richard Fink, the group’s first president.

Fink would go on to become a director and executive at Koch.

Reagan Office of Management and Budget Director James Miller became a board member of CSE in 1988. Wayne Gable, who replaced Fink as CSE President in 1989, is now Managing Director of Federal Affairs at Koch.

Former House Majority Leader Dick Armey, R-Texas, is the current co-chairman of CSE.

The other co-chairman is C. Boyden Gray, who was counsel to George H. W. Bush, during his terms as president and vice president. He was also counsel to the Presidential Task Force on Regulatory Relief during the Reagan Administration.

In 1999, Gray prepared an amicus brief that underpinned a decision by a U.S. Court of Appeals in Washington that suspended air quality regulations issued by the Clinton-Gore administration in July 1997. CSE says it helped fund Gray’s brief.

Drafted Legislation for Bob Dole

That paled in comparison to what Gray and then-Sen. Bob Dole, R-Kan., tried to do on Koch’s behalf several years earlier, however.

In 1995, Koch was facing a $54 million lawsuit filed by the Environmental Protection Agency, the Coast Guard, and the Justice Department. It was basically the same oil spill case that Koch settled on such favorable terms in early 2001.

At the request of Dole, Gray drafted a bill which the senator introduced called the Comprehensive Regulatory Reform Act of 1995. Dole said the legislation was an “effort to inject common sense into a federal regulatory process that is often too costly, too arcane, and too inflexible,” according to The Buying of the President.

As Dole began pushing the bill through the Senate, a clause was inserted that would have allowed companies being sued to challenge the government by finding a conflicting or contradictory rule and to prove that the regulation had not been enforced uniformly.

If any companies had gotten leniency in the past on any regulations, companies such as Koch facing big government lawsuits could use the proposed law to make sure they weren’t given tougher sentences or higher fines.

The legislation died on the Senate floor later that year.

Nader lovers?

CSE has found itself in hot water in recent weeks over charges it has been working illegally to get consumer activist Ralph Nader on the presidential ballot in Oregon.

On June 30, Citizens for Responsibility and Ethics in Washington filed a complaint with the Federal Election Commission alleging that groups, including Citizens for a Sound Economy, the Bush/Cheney campaign and the Nader campaign, had violated federal campaign laws through the use of prohibited in-kind contributions.

In its complaint, CREW said CSE directed employees to call members, using prepared scripts, to encourage them to sign a petition that allowed Ralph Nader to put his name on the November ballot in the presidential election. According to CREW, CSE’s script stated “Liberals are trying to unite in Oregon and keep Nader off the ballot to help their chances of electing John Kerry. We could divide this base of support.”

Since CSE is a corporation, it is prohibited from making contributions to federal campaigns, CREW said in its complaint. The costs of creating the scripts as well as the costs of the telephone calls constitute prohibited in-kind contributions.

CREW said the Oregon situation is part of a “pattern and practice of using tax-exempt corporations to provide substantial illegal assistance to presidential campaigns. As the names of the donors to tax exempt organizations are not reported, this allows campaigns to avoid the transparency called for by the Bi-Partisan Campaign Reform Act.”

Senate Investigation on Issue Ads

The recent Oregon case isn’t the first time that Koch-backed organization has been accused of playing fast and loose with campaign finance laws.

In 1997, the Kochs were investigated by the Democratic staff on the Senate Committee on Governmental Affairs for their alleged funding of so-called “issue ads” during elections the previous year.

The investigation involved a for-profit corporation called Triad Management Inc., which was owned by Carolyn Malenick, a Republican fundraiser.

In 1996, according to The Buying of the President 2000, Triad was responsible for pro-Republican advertising in 26 House races and three Senate races. Triad was connected to two not-for-profit organizations, Citizens for Reform and Citizens for the Republic Education Fund. Neither group had a staff or office, but they ran $3 million in television ads paid for by Triad-related entities in the closing days of the 1996 campaign.

More than half of the Triad-connected money—$1.79 million – came from a group called the Economic Education Trust, which the Democratic Staff of the Senate committee suggested had been funded by Charles and David Koch.

The Senate investigators found that much of the money spent by Triad and another group called the Coalition for Our Children’s Future helped Republican candidates in states where Koch has refineries, pipelines, or offices, including Arkansas, Kansas, Louisiana, Minnesota and Oklahoma.

While the Senate committee did not officially charge Koch with campaign law violations, the investigation did uncover a $2,000 Koch Industries corporate check made out to Triad.

In 1998, the Wall Street Journal reported that it had discovered documents the paper said confirmed a direct link between Charles Koch and the ads.

Specifically, the Journal report said Republican political consultant Kenneth Barfield, who was on Koch’s payroll in 1996, relayed information between Triad and the Economic Education Trust, which ultimately financed the ads.

The Koch revolving door

These days, Koch’s sphere of influence also reaches directly into the White House and other parts of the executive branch.

Once an in-house lobbyist for Koch, Elizabeth Stolpe is now an associate director at the White House’s Council on Environmental Quality.

Stolpe as well as Graham were copied on an e-mail sent to the White House by Bracewell & Patterson, a K Street lobby shop pushing for reform of the New Source Review section of the Clean Air Act. In fact, the White House team behind Clear Skies included Graham and Stolpe, as well as valued Bush advisors Karen Hughes and Karl Rove.

Another Koch employee has recently gone through the revolving door at the Pentagon.

Last December, Alex Beehler left Koch to become assistant deputy under secretary of defense for Environment, Safety and Occupational Health. In his new role, Beehler will be a top advisor on environmental, safety and occupational health policies and programs throughout the Defense Department.

A Pentagon press release said those programs include “clean-up at active and closing military bases, compliance with environmental laws, conservation of natural and cultural resources, pollution prevention, environmental technology, fire protection, safety and explosive safety, and pest management and disease control for Defense activities worldwide.” While at Koch, Beehler served as director of environmental and regulatory affairs and concurrently served at the Charles G. Koch Foundation as vice president for environmental projects.

Prior to joining Koch, Beehler served in the Department of Justice as a senior trial attorney for environmental enforcement and at the Environmental Protection Agency as a special assistant for legal and enforcement counsel.