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Koch Industries Exposed for Bribery, Secret Iran Sales and More
Late Sunday night, after a flurry of PR flack-directed prebuttals that had eyebrows arching and anticipation building, Bloomberg Markets Magazine released an epic exposé about Koch Industries' misdeeds during the last three decades.
Fifteen Bloomberg journalists from around the world contributed to the story.
What did they uncover?
Bloomberg reports that employees of a Koch Industries unit in France called Koch-Glitsch made "improper payments to secure contracts in six countries dating back to 2002, authorized by the business director." The activity was uncovered in May 2008 by a Koch Industries compliance officer, Ludmila Egorova-Farines, who was hired to investigate allegations the French unit had been awarding improper salary increases -- not to investigate bribery.
These six years of "improper payments" were made in Algeria, Egypt, India, Morocco, Nigeria and Saudi Arabia. "The only thing that would seriously impact the profitability and continuity of Koch Industries was a compliance issue," former Koch-Glitsch managing director for the U.K., Ged Horner, told Bloomberg. To avoid a bribery scandal like that faced by Siemens AG, the company placed the responsibility on the business director of Koch-Glitsch France, Leon Mausen, and fired him in December 2008.
Koch-Glitsch described the illegal activity in Mausen's termination letter, which was later made public when Mausen challenged his firing in French Labor Court (but was not reported on by the media). The letter described giving cash-stuffed envelopes to a Moroccan company, making payments to a partially state-owned company in Egypt, and paying off a Nigerian government agency to win contracts.
The "U.S. Foreign Corrupt Practices Act" of 1977 (authored by former Wisconsin Senator Bill Proxmire) makes it illegal for U.S. or foreign companies to pay bribes to government officials and state-owned companies. Duke Law School professor Sara Sun Beale tells Bloomberg the termination letter outlining the six years of Koch's illegal payments "really should get the Justice Department's attention. When you have a smoking gun, you launch an investigation."
Despite Koch-Glitsch's efforts to point the finger at Mausen, the French Labor Court wrote in its opinion that "it was not Mr. Mausen alone who was giving authorizations." Mausen was the fall guy, but responsibility may have gone further up the command chain. Company policy required approval from other Koch-Glitsch managers, the court said, including Christoph Ender, the president of Koch- Glitsch for Europe and Asia.
The compliance officer who exposed the bribery scandal, Egoriva-Farines, was initially promoted by Koch but then fired in 2009. She also challenged her termination in French Labor Court, alleging she was fired in retaliation for uncovering the illegal payment scheme.
Sales to Iran
Bloomberg also reports that Koch Industries "sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism." U.S. companies have been banned from trading with Iran since 1995, but Koch made sales through its foreign subsidiaries as recently as 2007.
George Bentu, a sales engineer from 2001 to 2007 for Koch-Glitsch in Germany, was interviewed by the U.S. Department of Homeland Security in 2008 about these trades. "Every single chance they had to do business with Iran, or anyone else, they did," Bentu said.
Bentu was forced out of the company in April 2007.
According to the article, the company took "elaborate steps to ensure that its U.S.-based employees weren't involved in the sales to Iran " to avoid technically violating the law.
What is Koch's current PR line on its trading with Iran? The conservative PowerLine blog's pre-emptive spin on the Bloomberg article claims that "the fact that long ago, a subsidiary of a European Koch subsidiary sold equipment in Iran is anything but a bombshell."
Apparently four years is "long ago," and Koch can now sweep both whistleblowers and past misdeeds under the rug. This is a well-rehearsed operation for Koch companies, which is no stranger to recovering from regulatory actions and lawsuits.
Falsifying Benzene Emissions
In April 2001, the Koch Petroleum Group (now Flint Hills Resources) pled guilty to a felony charge of lying to the government about benzene emissions from its Corpus Christi, Texas plant. Benzene can cause Leukemia and other cancer. Koch earned $176 million in profit from the plant in 1995. It would have cost $7 million to comply with the benzene emission regulation.
In January 1995, Koch informed the Texas Natural Resource Conservation Commission it had installed a new anti-pollution device to burn off the benzene – but refinery workers disconnected it in days.
In December 1995, Koch environmental technician Sally Barnes-Soliz found 91 metric tons of uncontrolled benzene emissions from Koch Petroleum's plant in Corpus Christi, Texas, more than 15 times what was permitted by law. In April 1996, however, Koch reported to Texas regulators uncontrolled emissions of only 0.61 metric tons for 1995, or 1/149th the quantity Barnes-Soliz had found.
Barnes-Soliz reported the falsification, and when Koch found out, it "stripped her of her responsibilities and moved her to an empty office with no tasks and no e-mail access." She quit in July 1996.
Stealing Oil on Indian Land
In May 1989, estranged Koch brother Bill, twin brother of David, told the Senate special committee on investigations of a scheme to steal oil on Indian land. "According to data the committee compiled, Koch took 1.95 million barrels of oil it didn't pay for from 1986 to 1988.
FBI agent Richard Elroy told the committee, "The theft is widespread and pervasive, and these people are being horribly victimized."
The Senate referred the case to the Justice Department, but no indictment followed.
However, in a December 1999 civil trial brought by Bill Koch, the jury found that "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."
Phil Dubose, who worked for Koch Industries from 1968 to 1994, told the jury that "the Koch Method is to cheat the producer out of crude oil."
Koch settled the case in 2001 for $25 million.
Koch's current PR line on the scandal? Melissa Cohlmia, Koch's director of corporate communications, said in an email to Bloomberg reporters, "We believe that our practices were consistent with industry practice."
Deadly Butane Explosion
In August 1996, Danny Smalley watched his 17 year old daughter Danielle and her friend Jason Stone get burned alive in a cloud of ignited butane gas that had leaked from a corroded Koch Industries pipeline.
A jury found that "Koch Industries acted with malice because it had been aware of the extreme risks of using the faulty pipeline," and awarded Danny Smalley $296 million in 1999 for the wrongful death of his daughter.
Smalley used the settlement money to start the Danielle Dawn Smalley Foundation for pipeline safety education. "You see two children burned to death in front of you, you never forget that," Danny Smalley said in an interview with Bloomberg. "I want to stop other parents from ever having to see that."
Three months later, Koch settled two EPA cases for $35 million, which covered more than 300 oil spills in six states.
Koch's PR line on the Smalley verdict? Well, spokesperson Cohlmia says, there was only one explosion, after all.
Koch and the American Legislative Exchange Council
Given the Kochs' history of environmental violations and efforts to skirt U.S. law, it is little wonder they have funded a broad array of organizations that seek to dismantle the Environmental Protection Agency, deny climate science that justifies many environmental regulations, and otherwise deregulate the economy in ways that benefit Koch Industries' bottom line.
In addition to Astroturf groups like American for Prosperity, Koch Industries and the foundations funded or managed by the Koch brothers have a long history of heavily funding the American Legislative Exchange Council (ALEC).
Among the ALEC "model" bills and resolutions that the Center for Media and Democracy made public on ALECexposed.org are bills that roll back environmental protections and regulations like those that Koch violated in Corpus Christi, resolutions that thwart regional carbon emissions initiatives, and a report calls EPA regulations a "trainwreck." There are also resolutions opposing any and all trade sanctions like those Koch came close to violating with its Iran sales, in addition to bills that advance Koch ideological initiatives like dismantling social security.
The Kochs' Claude R. Lambe Foundation gave $125,000 to ALEC in 2009. The Charles G. Koch Foundation gave over $75,000 to ALEC in 2009 and loaned ALEC $500,000 in 1996. Koch Industries sponsored the publication of ALEC's 1995 Sourcebook of "model" legislation for the states.
Read the full Bloomberg article here.