Koch Brothers Under the Microscope

A major backer of Republican and Libertarian causes is under fire.

Several commenters have pointed to yesterday’s Bloomberg report titled “Koch Brothers Flout Law Getting Richer With Iran Sales” asking for comment.

I’d briefly glanced at it yesterday morning and dismissed it as no big deal after skimming the opener:

In May 2008, a unit of Koch Industries Inc., one of the world’s largest privately held companies, sent Ludmila Egorova-Farines, its newly hired compliance officer and ethics manager, to investigate the management of a subsidiary in Arles in southern France. In less than a week, she discovered that the company had paid bribes to win contracts. “I uncovered the practices within a few days,” Egorova- Farines says. “They were not hidden at all.”

She immediately notified her supervisors in the U.S. A week later, Wichita, Kansas-based Koch Industries dispatched an investigative team to look into her findings, Bloomberg Markets magazine reports in its November issue. By September of that year, the researchers had found evidence of improper payments to secure contracts in six countries dating back to 2002, authorized by the business director of the company’s Koch-Glitsch affiliate in France. “Those activities constitute violations of criminal law,” Koch Industries wrote in a Dec. 8, 2008, letter giving details of its findings. The letter was made public in a civil court ruling in France in September 2010; the document has never before been reported by the media.

Paying bribes to win contracts in foreign lands is illegal and rightly should be, since allowing the practice is tantamount to mandating it. It’s also commmonplace in many countries, considered simply part of the cost of doing business.

I had a similar reaction after reading after this:

Koch-Glitsch is part of a global empire run by billionaire brothers Charles and David Koch, who have taken a small oil company they inherited from their father, Fred, after his death in 1967, and built it into a chemical, textile, trading and refining conglomerate spanning more than 50 countries.

Koch Industries is obsessed with secrecy, to the point that it discloses only an approximation of its annual revenue — $100 billion a year — and says nothing about its profits.

The most visible part of Koch Industries is its consumer brands, including Lycra fiber and Stainmaster carpet. Georgia- Pacific LLC, which Koch owns, makes Dixie cups, Brawny paper towels and Quilted Northern bath tissue.

Charles, 75, and David, 71, each worth about $20 billion, are prominent financial backers of groups that believe that excessive regulation is sapping the competitiveness of American business. They inherited their anti-government leanings from their father.

Lots of rich people are obsessed with secrecy and go to extreme lengths to hide how much money they make. Considering that “Koch Brothers” is an epithet in some circles the ways “George Soros” is in others, it’s even more understandable in their case.

I quit reading after this paragraph:

Fred was an early adviser to the founder of the anti- communist John Birch Society, which fought against the civil rights movement and the United Nations. Charles and David have supported the Tea Party, a loosely organized group that aims to shrink the size of government and cut federal spending.

While I’m not a fan of the Tea Part’s tactics and the Know Nothingism of some of its leadership, insinuating that it’s the modern day equivalent of the John Birch Society is risible.

After that ridiculously long setup and a bit more, the article finally gets to a point:

A Bloomberg Markets investigation has found that Koch Industries — in addition to being involved in improper payments to win business in Africa, India and the Middle East — has sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.

Internal company documents show that the company made those sales through foreign subsidiaries, thwarting a U.S. trade ban.

This is quite problematic, indeed. But, oddly, the authors, Asjylyn Loder and David Evans, immediately lose the scent and go down the wrong rabbit hole–without even bothering to start a new paragraph:

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.

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.

Phil Dubose, a Koch employee who testified against the company said he and his colleagues were shown by their managers how to steal and cheat — using techniques they called the Koch Method.

They mention a 1999 jury verdict in Texas and a guilty plea in 2001 of lying to regulators and note that, “Former Koch employees in the U.S. and Europe have testified or told investigators that they’ve witnessed wrongdoing by the company or have been asked by Koch managers to take what they saw as improper actions.”

It’s a portrait of a company that, as recently as 2003 anyway, had a corporate culture–at least in some of its subsidiaries–of flouting the law and ethical principles and treating fines, civil jury verdicts, and even criminal penalties as the cost of doing business. It’s interesting stuff, I suppose but, even though I was completely unaware of any of this, it’s all part of the public record and not exactly news–which is, by definition, new.

As best I can tell, the only potentially new thing in the story is the allegations about Iran sales. I quoted the entirety of that reporting–two sentences–above. And, unlike the other reporting in the story, there’s no mention of dates. Much later in the piece, split between two section headers, that story seems to be strongly undercut:

Melissa Cohlmia, Koch’s director of corporate communications, said in an e-mailed statement that the company has developed a good relationship with environmental regulators and now complies with all rules. Cohlmia says the company has learned lessons from past mistakes, including the improper payment scheme that Koch outlined in its letter filed in French court.

“We are proud to be a major American employer and manufacturing company with about 50,000 U.S. employees,” she wrote. “Given the regulatory complexity of our business, we will, like any business, have issues that arise. When we fall short of our goals, we take steps to correct and address the issues in order to ensure compliance.”

Cohlmia says Koch fired the employees and sales agents involved in the illicit payments and strengthened internal controls.

Regarding sales to Iran, she wrote, “During the relevant time frame covered in your article, U.S. law allowed foreign subsidiaries of U.S. multinational companies to engage in trade involving countries subject to U.S. trade sanctions, including Iran, under certain conditions.” Koch has since stopped all of its units from trading with Iran, she says.

So . . . it wasn’t actually illegal to sell things to Iran via their foreign subsidiaries? And this is the allegation that merited the headline, despite being oddly buried.

Basically, this is a compilation of several very old stories to weave together a picture of a corrupt corporate culture that existed as recently as 2003 and, presumably, given that the same two old men are in charge, still exists.

So, what’s the point of all this? Well, of course, the Koch brothers are major players in Washington politics and we are to draw the conclusion that the same disregard for ethics applies in that arena, too. But they provide no evidence beyond insinuation.

The feature could have benefited strongly from a decent editor. It’s poorly organized, with common threads broken into scattered pieces and the important information buried late in the story. Even individual paragraphs don’t necessarily unite around a single theme.

The bottom line seems to be the Koch Industries at least occasionally pushes the envelope of ethical and legal propriety and that they invest a lot of money into political lobbying and campaigns. But this is all a matter of public record. The “new” thing seems to be aggregating it all into one long, poorly organized story.

UPDATE: ProPublica has a good breakdown on the story that I’m appending here in full via their “steal our stories” license:

What Are the Latest Revelations About Koch Industries?

Bloomberg has published an in-depth investigation into business practices at Koch Industries, run by politically influential brothers Charles and David Koch. The story lays out what it suggests is a decades-long pattern of illegal and unethical behavior at Koch.

Both Bloomberg’s story and Koch’s official response are long and full of complicated details, and it’s not easy to untangle it all. Here’s our guide to what seem to be the newest, most significant allegations.

Undisputed: Koch’s subsidiaries in Europe got contracts through bribes in at least six countries.

In 2008, in the wake of a $1.6 billion settlement by the German engineering giant Siemens for bribing officials around the world, Koch conducted an internal investigation of its own payment practices. The company found that its France-based affiliate, Koch-Glitsch, had paid illegal bribes to secure contracts in India, Africa and the Middle East, including bribes to government officials, a practice banned by the Foreign Corrupt Practices Act. In response, Koch fired several employees and sales agents, including the business director of Koch-Glitsch France.

Disputed: Was Koch’s response sufficient?

According to Bloomberg’s analysis of French court documents, Koch failed to hold higher-level officials accountable for the bribery payments. Koch said Koch-Glitsch’s president for Europe and Asia “had no knowledge” of the misconduct. Koch also ended up firing the ethics manager who first conducted its investigation, and French labor courts upheld the firing as fair.

Context: Many corporations make bribes — and pay fines for breaking the law.

Many large companies have been investigated for bribery of foreign officials, includingHewlett-Packard and Motorola. The U.S. has recently stepped up its enforcement of the Foreign Corrupt Practices Act, including a preliminary investigation this year into whether News Corp. may have violated the act. A recent survey of business executives found that only 30 percent were “very confident” that their existing policies would prevent bribery.

Undisputed: Koch’s European subsidiary sold petrochemical equipment to Iran, which seems to be perfectly legal.

While American companies have been banned from trading with Iran since 1995, Koch’s European subsidiary, Koch-Glitsch, sold equipment to a unit of Iran’s National Petrochemical Company for nearly a decade. The equipment helped construct an ethanol processing plant. Koch’s legal counsel told The Washington Post that the sales totaled roughly 15 million euros over nine or 10 years, and that the equipment sold had “no military, weapons, or nuclear application whatsoever.”

As Bloomberg notes, while the sales to Iran may be controversial, they appeared to be legal since no U.S. citizens or U.S.-based divisions of the company were involved. Instead, Koch did the business at arms length through Koch-Glitsch offices in Germany and Italy.

Disputed: Was it wrong for a Koch subsidiary to do business with Iran?

Bloomberg described internal documents demonstrating that Koch took a rigorous approach to following the letter of the law, but suggested more investigation might be appropriate. Koch’s general counsel told The Washington Post that the company voluntarily ended all sales to Iran in 2005 or 2006. (Bloomberg reported records of sales to Iran until 2007.) Koch dismissed comments by what it called a “disgruntled former employee” who told Bloomberg she felt the company’s dealings with Iran had betrayed itsstated core principal of integrity.

Context: Koch is one of many corporations that have done business with Iran.

Many other American companies, including Halliburton and GE, have done business with Iran through subsidiaries, and as The Washington Post’s Jennifer Rubin pointed out, a few were still doing so after Koch ended its ties to Iran.

As well as these new criticisms of Koch’s corporate behavior, the Bloomberg article and Koch’s response revisited several previously reported scandals, including millions of dollars in settlements the company paid after it failed to pay for $31 million worth of crude oil it took from Indian landmade false statements to cover up illegal emissions of the toxic chemical benzene at a Texas plant, and accepted responsibility for the deaths of two Texas teenagers who died in an explosion caused by a leak in a gas pipeline with a well-documented history of corrosion.

This is a non-partisan source that partners with TalkingPointsMemo, the Washington Post, and others hardly prone to Koch sympathies. And they’ve independently reached essentially the same conclusions as I did.

FILED UNDER: General
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Rob in CT says:

    I quit reading after this paragraph

    Well, no, obviously you didn’t. As for the JBS comparison, aren’t there a lot of common themes? Not hardcore Right Wing = Commie and so on?

    “During the relevant time frame covered in your article, U.S. law allowed foreign subsidiaries of U.S. multinational companies to engage in trade involving countries subject to U.S. trade sanctions, including Iran, under certain conditions.”

    If accurate, this amounts to yet another company acting unethically but not illegally. Par for the course (which, in and of itself, ought to give a no-regulations! Libertarian pause).

    At this point I assume a certain amount of shady behavior by any large company. It’s like politicians: expecting honesty & decency is a fools game. There’s money to be made, after all. In this instance, it appears the clearly illegal stuff was discovered and dealt with internally, which is good.

    I disagree with the Koch’s political philosophy, which is all the more irritating considering that they inherited great wealth (born on 3rd, think they hit a triple). That’s my main issue with them.

  2. steve says:

    Agreed. They are just run of the mill, hypocritical low level crooks like a lot of other billionaires. I don’t think they deserve the level of demonization many accord to them. What should be challenged are the ideas that they promote and it should always be noted that the ideas they promote tend to disproportionately benefit them directly while not doing much for most other people.

    Steve

  3. Aidan says:

    You quit reading because the article (truthfully) pointed out Fred Koch’s John Birch Society connection? Or you quit reading because the article (truthfully) pointed out that the Koch brothers have helped fund the Tea Party? Or you quit reading because the article explained both of those points concurrently, which you evidently assumed must be a direct comparison?

  4. Hey Norm says:

    I think you miss the larger point…although, as you say, it is poorly edited so I’m not suprised.
    The Koch Brothers are leaders of the Libertarian movement…spending billions in an effort to be de-regulated, and to shape the thoughts of so-called republicans. The story weaves together exactly how they would behave if and when they are de-regulated…flout laws and ethical standards, with no regard for the environment, or the safety of their emplyees. They will do business with enemies of the US. They will steal. They will price fix.
    This story is about the dangers of de-regulation. And it’s a story of how Libertarianism is terrific in the abstract…but completely falls apart when exposed to the real world.
    The Koch Brothers prove that individual interests are rarely in sync with societies best interests…which is the presumption of Libertarians. They assume competition and the invisible hand will force each party to act in a responsible manner…no matter how self-interested they are. This story, and the Koch Brothers, point up the massive fallacy in this line of thinking. The Koch Brothers want to fist you with that invisible hand.

  5. WR says:

    Nothing to see here. Business as usual. Now back to running 9,000 posts on how Solyndra proves that government is bad.

  6. michael reynolds says:

    It’s a miserably-written piece, I agree.

    The allegation that the Koch’s helped to strengthen a terrorist-backing regime is not small news. Might they have found a legal work-around? Maybe so. And if that was the only important criterion we might shrug. Except that no, we wouldn’t, because legal or not the Iranians back terrorists. So no, there’s really no excuse for attempting such a legal work-around.

    These are highly political men. These men back a wide array of conservative causes. They are in the political arena. And while in that position, beavering away endlessly to destroy unions, back the Tea Party and push Libertarian causes they apparently strengthened the regime that bankrolls Hezbollah, and supplies weapons that are used to kill American soldiers in Iraq, and is attempting to build nuclear weapons.

    So that’s not a “move along, nothing to be seen here,” story. It’s a story of possible law-breaking, immorality and betrayal of this country.

  7. Hey Norm says:

    I guess the short version of my comment above is:
    If this is how they act when regulated, how are they going to act in the absence of regulation? And do we want to give them, and companies like them, that license?

  8. john personna says:

    The key question is this:

    If it is OK (OK with all of us?) for US companies to set up foreign operations to circumvent US embargoes … why do we have embargoes at all?

    I mean James, do you think we should scrap it, and let everyone trade with Iran?

    If not, why is shell company scam, as we’ve read “carefully staffed” with non-Americans “a fair dodge?”

  9. john personna says:

    (I guess at it’s darkest extension, the libertarian philosophy would be that you CAN make all the bucks you want after enemies of the US, while painting yourself a patriot.)

  10. Ron Beasley says:

    The Koch brothers are text book examples of sociopaths who don’t care about the United States or it’s citizens. The only care about how much wealth and power they can accumulate.

  11. James Joyner says:

    @Rob in CT and @Aidan: I skimmed the piece yesterday to see whether it was worth writing about. So, in the initial part of the post, I’m explaining why I initially dismissed it. Obviously, at the point when I decided to go ahead and write about it, I read it more closely and paid attention to the rest of it.

    @Hey Norm: This is actually a valuable point, although not one I gleaned from the article itself. But, yes, it does raise legitimate questions about how they would behave if the legal structure was less than it is now.

    @michael reynolds: I agree that this is an important issue. As I note in the piece, I wish this had been put at the beginning of the article and some depth added. All I know from reading this is that they sold some amount of “petrochemical equipment” via overseas subsidiaries. Would someone else have sold it if they hadn’t? I don’t know. But the subject merits exploration.

    @john personna: This is perhaps the most troubling aspect of the globalization of the economy over the last three decades or so. State sovereignty has been greatly undermined by the fact that there’s really no such thing as “an American company” or “a Germany company” anymore.

    If a company operating in France gets bought up by wealthy Americans–usually in the form of a less than majority ownership but enough to get control of the board–and continues to operate in France, it’s not at all clear to what extent the US government should be able to regulate it.

    Trickier still are situations where the “overseas company” is a mere legal sham. That, I categorically oppose. But it’s damned hard to enforce.

  12. john personna says:

    @James Joyner:

    The most troubling thing is that the French operation asked their American bosses, beforehand.

    And the Americans did not say “‘no,” they said “make sure no Americans are involved in this deal.”

    That is entirely different than a weakly-connected foreign operation doing something without US command and control.

  13. john personna says:

    Just to be clear about those points:

    1) the French understood that the Americans were the boss

    2) the Americans understood they had to structure the deal to avoid US law

  14. James Joyner says:

    @Ron Beasley: I think that goes well beyond the existing evidence. Pushing the envelope and even crossing the line in terms of violating regulatory requirements doesn’t necessarily indicate anything more than aggressiveness in pursuit of profits. They’re not accused of killing people or selling dangerous medicine to babies. The closest thing to endangering American citizens cited in the piece is selling what I presume are drilling supplies to the Iranians to help them extract oil. But there’s really too little to go on there to make moral judgments.

    i honestly don’t care much about the Koch Brothers one way or the other. They funnel a lot of money into causes, some of which I support, but I can evaluate the causes separately from the funders.

  15. john personna says:

    @James Joyner:

    I think we have to say this may have been legal, but obviously unethical.

    When the US enacts any embargo that cannot be a wink and a nod for everyone to go set up French subsidiaries and bypass the same.

    Or we are in the territory where “it’s OK to break any law I don’t like.”

  16. john personna says:

    From that same Bloomberg story:

    Bentu says he had been working at Koch-Glitsch in Viernheim, about 80 kilometers (50 miles) south of Frankfurt, for two months when he first saw an order destined for Iran. Concerned that the transaction might run afoul of U.S. law, Bentu asked his manager about it, he says. Bentu says his boss told him not to worry, that the company’s U.S. lawyers made sure the deals with Iran were legal.

    That’s the key. U.S. Lawyers spent their time, not honoring the intention of the embargo, but making sure that the deal avoided it.

  17. mantis says:

    So can we now consider the Koch brothers part of the Axis of Evil?

    All I know from reading this is that they sold some amount of “petrochemical equipment” via overseas subsidiaries. Would someone else have sold it if they hadn’t? I don’t know. But the subject merits exploration.

    Ah, the moral justification of illegal arms dealers. Always a winner.

  18. john personna says:

    @mantis:

    If I were really morally bankrupt, I might use “Would someone else have sold it if they hadn’t?” to justify “Fast and Furious,” right?

  19. James Joyner says:

    @john personna: IANAL but I thought that was the whole point of lawyers: to help you figure out how to do what you want to do while remaining inside the letter of the law.

    @mantis: I’m there addressing the question of whether, by figuring out a way to legally do something that was supposed to be illegal, the company did any harm to US national security. We need more information to make that judgment. If there are a slew of French companies eagerly selling the same equipment, I don’t see any harm in a French-based Koch subsidiary competing for the business.

  20. john personna says:

    @James Joyner:

    IANAL but I thought that was the whole point of lawyers: to help you figure out how to do what you want to do while remaining inside the letter of the law.

    Man, you let yourself wake up and get on the wrong side of this one. All you needed to do, to keep the high ground, would be to say that US companies, where they control the deal, should honor US embargoes. And that no, where they do not control the deal, where they are not majority shareholders, they cannot.

    Instead you’ve let yourself be cornered defending the indefensible, that US companies should be free to skirt embargoes with foreign legal constructions. That is something you said above that you “categorically oppose” .. except not quite. Not when the argument leads right up against it.

  21. michael reynolds says:

    In addition to points made above, let’s observe that this is a first look by a single media outlet. There’s enough here to warrant much more media interest and maybe Congressional or DOJ investigation. A company this willing to skirt the law to make deals with our enemies is reasonably suspect.

    Even what we have here should be enough for the Kochs political dependents to distance themselves. Chances of that happening? Close to nil. Money talks.

  22. Hey Norm says:

    “…They’re not accused of killing people or selling dangerous medicine to babies…”

    Well…not to get lost in details…but a couple people went up in a fireball because Koch Industries ignored safety regulations…safety regulations they would do away with given their way…which is to say more people would die.
    And emitting Benzene…a known carcinogenic into the air…might not kill someone directly but who wants cancer – raise your hand. And guys….benzene causes male breast cancer…so think carefully.
    And then there is polluting groundwater…again…no one dies directly…but…

    If this is what the Libertarian view of America is…no thanks.

  23. ponce says:

    They’re not accused of killing people or selling dangerous medicine to babies. The closest thing to endangering American citizens cited in the piece is selling what I presume are drilling supplies to the Iranians to help them extract oil. But there’s really too little to go on there to make moral judgments.

    Um, from the article you “read” and dismissed, James:

    In 1999, a Texas jury imposed a $296 million verdict on a Koch pipeline unit — the largest compensatory damages judgment in a wrongful death case against a corporation in U.S. history. The jury found that the company’s negligence had led to a butane pipeline rupture that fueled an explosion that killed two teenagers.

  24. Nikki says:

    So…is it now safe to conclude that the right has no moral authority with regard to anything?

  25. James Joyner says:

    @john personna: I categorically oppose the creation of sham companies for the purpose of flouting the law or evading taxes. What I’m rebutting in that answer is your notion that companies have some affirmative duty to comply with the spirit of regulatory restrictions rather than the letter. Absent some strong moral component (such as the public safety) that’s just nod an obligation that exists.

    @michael reynolds: Unless I”m missing something here, the DOJ and other government agencies have continually investigated Koch Industries over the year and levied fines and even criminal sanctions for a handful of violations. That would seem to contravene the notion that the government has somehow been bought off.

    The only thing newish here are the Iran allegations. But it certainly sounds like they stayed within the letter of the law here. The question is whether they violated some moral obligation to their country by aiding a government that sponsors terrorists. That’s a question that merits investigation.

    Is it incumbent on, say, Heritage Foundation or Reason magazine to turn down unrelated funding over any of this? Something REALLY big would have to turn up on the Iran front for that to make any sense.

  26. James Joyner says:

    @Hey Norm and @James Joyner: Fair enough. But how much of this is the Koch business model and how much is simply the dangerousness of the petrochemical business? BP, Exxon, and others have had much worse violations and nobody is suggesting that their money should be unwelcome at charities and political causes.

  27. Eric Florack says:

    While I’m not a fan of the Tea Part’s tactics and the Know Nothingism of some of its leadership, insinuating that it’s the modern day equivalent of the John Birch Society is risible.

    Shrug. Par for the course for today’s left, James. As it has been for a number of dictators over the years.

  28. john personna says:

    @James Joyner:

    The moral flaw in your argument is that you want to make the decision to circumvent a personal one. You say it doesn’t matter if there is an embargo with specific list of equipment. You say that anyone (or any corp) can make their own determination if item X is bad for enemy Y, and if not, to sell it through a shell.

    You don’t set the ethics at “honor my government’s embargo,” you set it at “break the embargo when I think it’s OK.”

  29. john personna says:

    (Obviously oil drilling equipment was on the embargo list, or it could have been sold directly form Texas.)

  30. TheColourfield says:

    @James Joyner:

    Shorter James

    “Everyone else is doing it, so what’s a few deaths and cancers between friends”

  31. Rob in CT says:

    Hey Norm’s point is a good one:

    This is how they act when regulated. I want to be clear: I doubt Koch Industries (and its subsidiaries/affiliates) is much worse than average in this regard. Corporations are amoral entities that exist to generate profit. If they can do something that is technically legal but unethical, and by doing so make a ton of money, they will almost always do it (and if they don’t, a competitor will). When they don’t, it’s usually for fear of future litigation. Welcome to the real world.

    The question is what to do about that. I submit that “nothing” is the wrong answer, and I think James and many other sane center-right folks would agree.

  32. PD Shaw says:

    @Hey Norm:” exactly how they would behave if and when they are de-regulated”

    I think ponce answered your question, they get sued for negligence if someone is injured. It doesn’t look like the pipeline explosion that killed two people was due to the failure to follow any regulation. I’d go so far as to speculate that Koch tried to defend itself on the grounds that it was in complete compliance with reguations. Anyway, here’s the backstory:

    Smalley and Jason Stone, 17, died in the Aug. 24, 1996, explosion while they were on their way to report the gas leak when their truck apparently ignited the fumes, authorities said.

    The plaintiffs claimed Koch didn’t properly train its workers, lacked public education about the pipeline and didn’t correctly maintain the line.

    Koch officials have denied negligence in the accident and said the line had been tested for safety.

    Jim Elmore, executive vice president of Koch, apologized to the victims’ families from the witness stand but said the company could not have foreseen the pipeline corrosion that led to the explosion.

  33. Nikki says:

    I’m rebutting in that answer is your notion that companies have some affirmative duty to comply with the spirit of regulatory restrictions rather than the letter.

    If companies have no duty to comply with the spirit of regulatory restrictions, then shouldn’t we embrace the idea that government needs to keep, enhance and effectively enforce regulations?

  34. michael reynolds says:

    @James Joyner:
    I guess the Heritage Foundation will have to decide for themselves whether they want the money of men who have materially aided a terrorist sponsor. But of course they’ll take the money. after all, morality is for the common herd, not for the oligarchs.

    As for there having been previous investigations I’d suggest in light of a link between the Kochs and the Ayatollahs there might be enough to warrant at least one more.

  35. anjin-san says:

    So bit, after years of lectures from you about the uber-evil of Iran and the menace they present to all that is good, the fact that the patron saints of the American right are in business with them earns a shrug?

  36. James Joyner says:

    @Rob in CT: I’m generally in favor of regulations against serious negative externalities. I think it’s very difficult to enforce them in an increasingly borderless business climate.

    @john personna: Regulations don’t , per se, impose moral obligations, merely legal ones. Morality exists aside from law, although the two occasionally overlap.

    @anjin-san: I haven’t been on the Iran Bogeyman bandwagon since Khomeini died. I think it would be wise to do what we can from keeping them from getting nuclear weapons, of course, although I don’t think there are any great solutions in that regard.

    In terms of their ability to drill for and sell oil, I’m agnostic. To the extent we can embargo them effectively–which ain’t very–it may help gain leverage for other goals. But more oil on the market is generally a good thing.

    @michael reynolds: “Materially aided” is just not supported by the sliver of evidence here. Selling things to Iran isn’t necessarily putting money in the hands of Hezbollah. But, regardless, lots of deep pockets outfits have some murky things on their CV; that doesn’t necessarily mean you don’t take their money. That depends on what the strings are.

  37. Steve Verdon says:

    @Ron Beasley:

    Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men….–Lord Acton

    It goes for most of these people. You don’t get to a position of great wealth and/or power without crushing people along the way. What I find pathetic is how many people are blind to this kind of thing in those they perceive as being on their side.

    Are the Koch brothers bad men? Probably. Does this mean the ideas they are supporting/funding are bad ideas? If that is the sole basis of the argument then it falls far short, IMO. Guilt by association, ad hominem, poisoning the well…not very impressive.

  38. Hey Norm says:

    @ James…

    “…nobody is suggesting that their money should be unwelcome at charities and political causes…”

    I’m also not suggesting that…although I do think Citizens United is over the top.
    What I am suggesting is that everyone be aware of exactly what we are talking about when we discuss de-regulation. De-regulation sounds wonderful in the abstract….But it is NOT some abstract thing…getting rid of regulations is not the panacea that Libertarians and so-called republicans would have you believe. It never will be. Regulations protect you and me from these people…whom we are unable to protect ourselves from. The Koch Brothers, and I’m sure Exxon and GE and Hewlett-Packard and Apple as well, want de-regulation so that they can get richer….unfettered by silly things like laws and ethics and responsibilities and accountibility.

  39. Hey Norm says:

    @ SV

    “…Does this mean the ideas they are supporting/funding are bad ideas?”

    They are fantastic IDEAS. The Koch Brothers illustrate the REALITY.

  40. ponce says:

    the fact that the patron saints of the American right are in business with them earns a shrug?

    The Koch Brothers are a classic American criminal tale:

    Become wealthy by systematically stealing from tens of thousands of corporations (The Koch Method), then spread that wealth around to buy respectability.

  41. anjin-san says:

    @ James

    My comment was directed at bithead, your foreign policy positions tend to be reasonable and well thought out. Eric on the other hand, has been calling for war with Iraq for years – his sudden “move along folks, nothing to see here” attitude is very revealing.

    If he truly believes Iran to be a vast nest of evil and a threat to world peace he should have harsh words indeed for the Koch brothers.

  42. john personna says:

    @James Joyner:

    I think it’s odd that in your last couple comments you’ve made different defense to me, and to michael. To me, you say it’s about what’s legal. To michael you attempt to mitigate the damage of their action.

    That is clearly down to splitting hairs, and not terribly consistent.

    Again, it would have been easy to take the higher ground that US companies should respect US embargoes, and then let the Kochs take the minor ding on that.

    There was nothing here that really needed to be defended. Their behavior was not exemplary.

    (To paraphrase an old saying, it’s not the crime, its the rationalization.)

  43. anjin-san says:

    calling for war with

    Iraq

    for years

    Sorry, should be Iran.

  44. Rob in CT says:

    James,

    I think it’s very difficult to enforce them in an increasingly borderless business climate.

    Indeed. We can put good environmental regs in place, but if other countries don’t, our businesses can move their factories and save money ’cause over there they can pollute at will (in addition to saving on labor costs). So long as the savings is greater than the cost of shipping the products back, it’s a win.

    Steve,

    Are the Koch brothers bad men? Probably. Does this mean the ideas they are supporting/funding are bad ideas?

    Maybe. Maybe not – broken clocks are right twice a day, right?

    The issue Norm raised, however, isn’t about “they’re bad men.” It’s about how business will act if not regulated. It’s not just the Kochs – indeed, it’s important to remember it’s NOT about a particular bad man/company. If a company can externalize costs, IT WILL.

  45. James Joyner says:

    @john personna: It’s two different conversations, really.

    Michael is alleging that Koch sales to Iran helped terrorists. I say that we need more proof of that but that it’s a very serious matter, indeed. In particular, I argue that it really depends on what was sold and whether Koch making it available mattered in any way other than who got the cash.

    You’re making a broader argument than companies have a moral obligation to obey the spirit of the regulations imposed by their governments. I’m arguing that, unless there’s a moral component–as in the terrorism angle–the only duty to regulation is a technical one of legal compliance.

  46. john personna says:

    @James Joyner:

    To me it is simple, which is the higher morality:

    1) US companies should direct their reporting subsidiaries to honor US embargoes.

    2) US companies should advise their reporting subsidiaries on how to avoid US embargoes.

    I mean, why the heck do YOU need proof that this trade helped terrorists? I mean, are you on our embargo review committee? Or do you just consider yourself superior to it?

  47. john personna says:

    BTW, let’s review the direct and above-board course of action the Kochs should have taken, had they believed that selling oil equipment was fine.

    – they should have lobbied the government for a change to the embargo.

    – they should have sold directly, from the US.

  48. Liberty60 says:

    A few days ago, James and Doug seemed terribly confused as to what the Occupy Wall Street protesters were all about, or why they were so angry.

    This post is a perfect example of the rage they, and I, and many Americans are experiencing.

    The Koch story shows how when you are rich enough, you literally become above the law, while everyone else does not.

    A family wades across the Rio Grande, and become criminals in the process. When caught, they are exposed to the full force and fury of the American government, and thrown into jail, including the children. This is because, you see, they are “criminals”.

    The Koch brothers have been found to violate the embargo and do business with a regime who, we are told, presents an existential threat to America.
    James quickly points out that they did not violate the letter of the law, and shrugs it off.

    OF COURSE THEY COMPLIED WITH THE LETTER OF THE LAW!

    The laws are WRITTEN by lobbyists and corporate attorneys who write the laws specifically to allow them to do what they want.

    In other words, if I walked door to door soliciting funds for Hezbollah, I would be arrested and criminal, a traitor to America;

    But if I formed a shell corporation, and then a French subsidiary, and funneled the funds to the Iranian government that just happened to support Hezbollah, then in James’ view, I am simply a businessman, and by gosh, the whole thing is so terribly unclear, it would be unfair to focus on it, and anyway, there are more pressing things to worry about, like that criminal washing dishes at the local Applebee’s.

    And even when the Koch brothers manage to knowingly, deliberately break the laws, even when that results in the deaths of innocent people, James cannot seem to bring himself to call them “criminals”; they always remain somehow innocent victims, and their crimes are always vague and unfocused, abstractions really.

    THIS is why we are filled with rage; that there are two systems of justice in America today, and vast numbers of media outlets and bloggers eager to support and defend the double standard.

  49. michael reynolds says:

    @Liberty60:

    What Liberty said. Ditto.

  50. PD Shaw says:

    “James quickly points out that they did not violate the letter of the law, and shrugs it off.
    OF COURSE THEY COMPLIED WITH THE LETTER OF THE LAW!”

    Is this a pro-regulatory rant or anti-?

  51. James Joyner says:

    @Liberty60: The article makes it pretty clear that Koch Industries, a massive international conglomerate, has one a handful of occasions been found to have violated the law and prosecuted for it, successfully. Additionally, they have one at least a couple of occasions been successfully sued for damaged in civil court.

    One of their French subsidiaries sold some sort of petrochemical supplies to Iran, which is perfectly consistent with French law, some years back. Presumably, they did this in competition with French and other firms who do not have sanctions against Iran. In recent years, they’ve stopped doing this, presumably because of some sort of pressure at home.

    And, clearly, you have not read any of my myriad postings on illegal immigration over the years. I’m simultaneously in favor of enforcing our immigration laws–one of the few things still within the province of state sovereignty–and of making them more congruent with the economic and social realities of the planet. We should have more, not less, immigration. And, to the extent that we punish transgressions of our immigration law criminally, the hammer should fall on businesses that flout the law, not desperate peasants looking for a better life.

  52. ponce says:

    THIS is why we are filled with rage; that there are two systems of justice in America today…

    Not all rich people get away with their crimes:

    http://www.businessweek.com/news/2011-10-04/rajaratnam-seeks-prison-sentence-of-as-short-as-six-years.html

    Of course, Raj Rajaratnam is a brown rich person.

  53. steve says:

    ” And, to the extent that we punish transgressions of our immigration law criminally, the hammer should fall on businesses that flout the law, not desperate peasants looking for a better life.”

    Well said. Run for Congress and I will vote for you. In which party do you think this stance will be acceptable?

    Steve

  54. Aidan says:

    James, perhaps you can walk me through where you thought the Bloomberg piece unfairly compared the Tea Party to the John Birch Society in such an egregious manner that it caused you to stop reading.

  55. James Joyner says:

    @Aidan: As I point out in extreme detail, the piece is just horribly written and full of insinuation without much evidence. The interesting thing–the Iran revelation–is buried well into the piece, contains hardly any information, and then seems to be contravened with a “well, this isn’t really illegal” several paragraphs in. I read pieces like this to see whether they’re worth writing about and quickly dismissed it. I came back to it because several respectable commenters insisted that there was something more to it.

  56. Aidan says:

    So, to be concise, the piece did not do the thing you accused it of doing.

  57. James Joyner says:

    @Aidan: Yeah, it did. I quoted the passage in which they did it.

  58. Liberty60 says:

    @James Joyner:
    I applaud you for your sensible stance on immigration.

    But in my comparison of the two types of justice we have, I could have easily said that if I willfully and repeatedly cheated on my taxes, I would likely be sitting in prison right now, while rich and powerful individuals and corporations (Koch Bros, any one of a dozen military contractors) who do that exact thing, simply pay a small fine and go right back to feeding at the trough.

    Again, you repeat that the Koch brothers have violated the law…yet you, and conservatives generally, find it impossible to describe them as “criminals”. Even using that word is considered extreme and uncivil and somehow a transgression.

    @PD Shaw:
    The rant is that it is mighty convenient to smugly defend yourself for following the letter of the very law that you yourself helped write.

    The rules, laws, and regulations of our society are meant to level the playing field, to defend the powerless from the powerful; yet because of the enormous power of the 1%, the laws have been turned inside out, to shield the rich and powerful from accountability.

  59. James Joyner says:

    @Liberty60: Leona Helmsley, the Enron people, Martha Stewart, Bernie Madoff, and others have gone to jail for tax evasion, financial fraud, and the like. And Koch Industries has suffered massive fines.

    Are the Koch brothers “criminals”? Probably not, in that they haven’t been charged with, much less convicted of, crimes as individuals.I’d say that they’ve been involved in some shady, and perhaps even dishonorable dealings and that they’re not people I’d want to do business with.

    Is their company more apt to break the law than other global conglomerates? I really don’t know. But they’ve certainly pushed the envelope a lot and gotten convicted at least a couple of times.

  60. john personna says:

    I cannot believe the conglomerate dodge, the Kochs own and control their company, they certainly have the power to do the right thing. You are defending their right, as capitalists, to do the wrong thing.

    You do it because the Kochs are only helping Iran make money, and that money only indirectly purifies uranium.

    Of course the uranium is the reason drilling equipment is on the embargo.

  61. john personna says:

    (Really you are arguing we end all embargoes, but in the meantime every company should feel free to violate them at will. If it feels good, do it.)

  62. Jay says:

    I agree with Reynolds (which is rare). There are a lot of Koch stories floating around, many of which were written in an attempt to identify a single, unsympathetic source to channel liberals’ hatred for the tea party.

    However, if the Koch’s are trading with Iran, there needs to be an investigation. And this article is a poor start.

  63. Hey Norm says:

    “…many of which were written in an attempt to identify a single, unsympathetic source to channel liberals’ hatred for the tea party…”

    A ridiculous claim.

  64. Jay says:

    @Hey Norm: I’m no fan of the TP, but I found it odd that suddenly there was an explosion of stories accusing two billionaire brothers of…everything, all at once, and in particular, of funding the TP. All this while the Koch’s were simultaneously fooling a hostile media into thinking that the TP was mostly a grassroots movement It seemed a lot more likely that this was a sexy and convenient conspiracy theory. I looked into it and found that the original stories came from Think Progress. The stories were poorly researched and didn’t offer any proof…mostly a lot of accusations. Those same ideas were propagated to the networks. The only proven accusation is that the Koch’s began using one of their orgs to fund TP rallies well after the movement started (which I don’t think was a secret).

  65. Hey Norm says:

    Jay…
    The Koch’s and Dick Armey saw an opportunity and astroturfed it. Just follow the money…to the extent you can post Citizens United.

  66. Davebo says:

    The Foreign Corrupt Practices Act is both good and idiotic.

    If you want to explore for oil in Nigeria you’re going to have to butter some palms. It’s a fact of life. (Actually the same is true to a lessor extent in Alaska, where the act doesn’t apply.)

    And moving rigs, as well as rope soap and dope into Brazil, Nigeria etc. is the same. Don’t want those pup joints to sit in Customs for six weeks, well you get the idea.

    And keep in mind Libya was a part of “the badlands” until recently. It’s all arbitrary and rarely logical. Does Cuba ring a bell?

  67. Hey Norm says:

    Also Jay…
    The sudden appearance of Koch funding the Tea Party stories probably mirrors the sudden appearance of the Tea Party…a group that didn’t care about debt or size of government until Obama became President.
    Jane Mayers piece is good, and while attacked personally the reporting has not been debunked.
    Check also the Guardian and Crooks and Liars for other original reporting in addition to Bloomberg.

  68. anjin-san says:

    And Koch Industries has suffered massive fines.

    Gee, the petty cash drawer is only 2/3 full now? Ouch.

  69. Duracomm says:

    If koch brothers supported Obama’s brand of big government corporate welfare they would be treated much better by the media.

    A compare and contrast with the reporting on GE makes this abundantly clear.

    Bloomberg’s Exposé on Koch Industries Reveals … What Exactly?

    How About a Little Context?

    Really, the most shocking thing about this expose is that an army of Bloomberg reporters working for months only found eight instances of alleged misconduct by a giant multinational over the span of 63 years.

    To put this in context, do a quick Google search of “GE Fines.” Within a few pages of results you find:

    $16.1 million fine for Pentagon fraud (1990)
    $200 million settlement for various environmental pollution claims (1998)
    $23.5 million settlement for bribes associated with Iraq Oil for Food program (2010)
    $50 million fine for accounting fraud (2009)
    $97 million for unlawful debt collection practices (1998)
    $1 million settlement for misrepresentation of airline circuit board testing
    $7.1 million settlement for fraud regarding aircraft engine plant (1995)
    $69 million fine related to defense contracting (1992)

    When Political Bias Clouds the Facts

    Let’s start with the bias, because it’s pretty striking. Instead of focusing squarely on the alleged wrongdoing of Koch Industries, the article spend its first two sections after its introduction focusing on the Koch brothers’ free market politics. But here’s the thing: their philosophy has nothing — nothing — to do with the alleged criminal activity.

    To further attempt to sway the reader before explaining the facts, the reporters reveal the following fact that someone not familiar with politics and lobbying might find shocking: ” Koch Industries has spent more than $50 million to lobby in Washington since 2006.”

    My reaction to reading this was, “$50 million? That’s it?”

    Over the same period, GE has spent more than $136 million lobbying, according to the Center for Responsive Politics. And of course, GE’s CEO Jeffrey Immelt serves as the head of President Obama’s Council on Jobs and Competitiveness.

    Immelt is the same man who once urged businesses to find ways to profit from government subsidies, saying: “It’s never been a free market; it’s never gonna be a free market. That’s just the way it is.”

    The reporters provide no such perspective or comparison. Instead, they rely on misleading rhetoric to sway the reader before details on Koch Industry’s alleged misdeeds are provided.

  70. Jay says:

    @Hey Norm: I remember reading those when they came out. The Jane Myers piece seemed to be the best of the bunch. I can’t find the ungated version now, but from what I remember, she was quoting the White House as a source against the Koch’s (among others), and furthering the idea that there’s this secret conspiracy to trick americans into think the Tea Party is grass roots when it is really astroturf. As you said, the republican establishment certainly succeeded in astroturfing the TP movement, but the Koch’s involvement is no secret and is overblown. A lot of the claims in the article are about the environmental record and pure republicanism of the brothers, which isn’t a secret and shouldn’t even be shocking unless you’re an upper east side lefty.