2011 Bloomberg Markets Exposé
On September 22, 2011, business media outlet Bloomberg released an extensive report detailing the results of an investigation it had conducted into allegations by several former Koch employees turned whistle-blower. One whistle-blower detailed her termination after her compliance check had discovered a number of bribery payments made in order to secure contracts in six countries, including Nigeria, Egypt, and Saudi Arabia. Reporters also discovered that Koch companies had traded with Iran through foreign-held subsidiaries, possibly violating US law. Other sources within the article detailed a culture of poor ethics and allegations of outright theft.
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Bribery of Foreign Officials
In 2008, an internal investigation found numerous instances of bribery to foreign officials to secure contracts by Koch Industries subsidiary Koch-Glitsch. One incident which came under investigation was the payment of an unusually high premium to a sales agent who admitted in a French court that the payment had been passed on to someone representing a partially state-owned Egyptian company in order to secure a contract there.
The company attempted to blame the sales agent and terminated him with a six page letter detailing the company's illicit payments to interests in Algeria, Egypt, India, Morocco, Nigeria and Saudi Arabia and placing blame for them on the sales agent. However, the court found that "[the sales agent] was not giving authorizations" for the payments, instead indicating that Charles Ender, a major Koch executive and president of Koch-Glitsch for Europe and Asian operations at the time, was responsible.
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Firing of Compliance Officer
Meanwhile, the compliance offer initially assigned to the investigation was removed from the inquiry almost immediately and fired a short time later. After a seven week hospitalization in 2009, saying that she failed to share documents within the company and didn't have the skills she'd claimed on her resume, she was terminated.
The compliance officer argued that she her termination was retaliation for uncovering the illegal payments.
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Trading with Iran
Bloomberg also found that Koch companies had traded and worked extensively with Iran over a ten year period. Notable Koch-Iranian collaborations include the construction of the world's largest methanol plant for the National Iranian Petrochemical Company at the city of Bandar Assaluyeh. The plant is being used to tap into Iran's extensive natural gas resources.
A purchase order for refining equipment at the plant was sent the day after President George W. Bush outlined the concept of an "axis of evil" in his 2003 State of the Union address, where he articulated his view that Iran was a direct threat to the United States and specifically advocated for economic sanctions that Koch companies may have been violating. “Every single chance they had to do business with Iran, or anyone else, they did,” said one whistle blower of Koch Chemicals' dealings with Iran.
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Falsifying Benzene Emissions
In April 2001, the Koch Petroluem Group (now
Flint Hills Resources) "pleaded guilty to a felony charge of lying to the government about its benzene emissions". A report to the Texas Natural Resource Conservation Commission disclosed only 1/149th of the actual benzene pollution. The company was fined $10 million and ordered to fund an additional $10 million in costs for environmental cleanup in South Texas.
The extremely profitable plant earned almost $200 million for the company in 1995, the year of the violation; the benzene emissions would have cost $7 million to control. After an environmental technician reported the false report that led to the fines, Koch Petroleum Group moved the whistle blower to an empty office with no tasks and no e-mail access. She quit a short time later.
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Stealing Oil on Indian Reservations
In May 1989, the Senate held hearings on what the Senate special committee on investigations called "a widespread 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.
The Senate referred the case to the Justice Department, but no indictment followed. In December 1999 in a civil trial, 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." 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."
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Deadly Butane Explosion
In 1996, two Texas teenagers, aged 16 and 17, were killed after their car stalled in a cloud of butane vapor that disabled the vehicles internal mechanisms. The butane vapor was leaking from a corroded steel pipeline owned by Koch Industries. As the driver attempted to re-start the vehicle, the leaked butane cloud caused a massive explosion that killed both teenagers, burning them alive. A jury later awarded nearly $300 million to family members in a wrongful death lawsuit.
In the Bloomberg expose, a Koch spokesperson argued that this was only an isolated incident.
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The 'Koch Method'
In detailing past regulatory action against Koch businesses, the article interviewed whistle-blowers who had testified about their role in actions that drew enforcement. Court testimony details one man who testified under oath that he was taught to steal and cheat in business dealings, using techniques he was taught by superiors, who referred to them as the "Koch Method.