Bloomberg's Exposé on Koch Industries Reveals ... What Exactly?

Working for six months, 14 reporters around the world found eight ugly incidents in the last six decades -- all of which already resulted in fines or settlements, if applicable. Is that it?

Working for six months, 14 reporters around the world found eight ugly incidents in the last six decades -- all of which already resulted in fines or settlements, if applicable. Is that it?

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All reporters have bias. It's unavoidable: bias results even through as simple an action as deciding what to write an article about. Much of that bias isn't necessarily a problem. If you report facts in a fair-and-balanced manner, then readers can judge the story for themselves based on those facts. But at other times, some reporters' bias cuts so deep that it causes them to produce an article that squints too hard to see smoke when there is no fire. Unfortunately, such an article was produced this week by Bloomberg Markets Magazine on Koch Industries.

The article purports to be a hard-hitting exposé on the giant multinational, run by billionaire brothers Charles and David Koch. According to Bloomberg, 14 reporters around the globe worked for six months on the story. What did they turn up? Really, shockingly little. And what's worse: from the very outset, the reporters' bias against the Koch brothers is utterly clear.

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 say that you believe in small government is completely different from calling oneself an anarchist, or worse, a criminal. A responsible business owner who believes in the free market can go ahead and do whatever he or she chooses to further that view in Washington without breaking any laws. Indeed, most free marketeers have very extreme views about the importance of the rule of law and contracts. If a business knowingly and aggressively breaks the law, its doing so has nothing to do with its executives' politics; instead, this shows a blatant disregard for the law.

Despite its efforts, the article does not manage to prove that the Koch brothers have any such disregard for the law -- but I'll get to that in the next section when I consider all of the issues it raises. All that an article accomplishes by dwelling on the Koch brothers' dislike for excessive regulation at the onset is to bias any pro-regulation readers against the company early on. I would challenge those same reporters to find many business executives who welcome excessive regulation, unless it manages to give them an advantage over their smaller competitors, as so much regulation does.

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?"

That might sound like a lot, but let's compare that to, say, General Electric. 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.

Eight Issues Over Six Decades

Now let's talk about those details. They're explained in the article after the sections that describe the Koch brothers' political views. Unfortunately, the article's allegations are tough to follow. Even writing this post, I had trouble identifying the discreet allegations that the reporters intend to explain. Ironically, Koch Industries' response to the article does a better job of laying out these allegations than the article itself. The article provides eight examples of regulatory missteps or questionable decisions by Koch Industries spanning six decades. I'll try to break them down as clearly and succinctly as possible. You can try to trudge through the sprawling Bloomberg article if you want more detail.

Minnesota Jet Fuel Leak

Issue: Clean Water Act violations in 1999
Status: Resolved, Koch paid $8 million in fines and penalties.

Oklahoma City Dumping

Issue: Koch was responsible for clean-up costs for dumping that occurred between 1946 and 1953
Status: Resolved, settled in 2009 with remediation ongoing.

Benzene Emissions

Issue: Koch violated the Clean Air Act, and voluntarily disclosed the problem to the government in 1995
Status: Resolved, Koch plead guilty and paid $20 million in damages.

Pipeline Explosion

Issue: A gas leak resulted in an explosion that killed two people in 1996
Status: Resolved, state jury awarded family $296 million

Antitrust Conspiracy

Issue: Koch bought into an antitrust conspiracy with a Mexican company in 1998
Status: Resolved, Koch paid fine of $28.5 million and a director was convicted of a felony. (Koch asserts that it unknowingly bought into this conspiracy, stopped the contract when it found out what was going on, and consequently cooperated with U.S. authorities.)

Oil Measurement on Native American Lands

Issue: Koch's oil measurement practices were allegedly unfair to producers (1970s and 1980s)
Status: Resolved, Koch paid $25 million to settle the case.


Issue: Koch discovered that one of its European subsidiaries was making questionable payments to third party parties to secure business (1998 to 2007)
Status: Resolved, Koch fired the managers responsible when it discovered the wrongdoing. (One of those employees sued for wrongful termination under labor laws and won, because it took Koch more than 60 days to terminate the employee.)

Petrochemical Sales to Iran

Issue: From 2001 through 2007, a Koch foreign subsidiary legally sold petrochemical equipment to Iran.
Status: No law was broken, but in 2007 the company decided to stop doing business with Iran anyway.

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)

(Sources: NY Times, CorpWatch, Florida Political Press)

I'm not trying to pick on GE here. But we know that GE's executives aren't crusading against regulation, and yet their alleged misdeeds appear as bad as or worse than Koch Industries'. And I didn't need a team of 14 reporters to work six months to figure that out -- I just did a quick Google search.

The reality is that this article failed to uncover any truly damning revelations about Koch Industries. The worst black-eye is arguably the company's sales to Iran through a foreign subsidiary. While certainly bad PR, no laws appear to have been broken. The possible bribery of a European subsidiary might look uglier if it wasn't Koch itself that uncovered it and fired those responsible.

Obviously, Koch Industries did make mistakes. It likely regrets those mistakes: the penalties, fines, and lawsuits that resulted cost the firm many millions of dollars. This is more a problem with big multinational corporations than a problem specific to Koch, however. When you've got subsidiaries around the world, strong, flawless oversight is difficult and very expensive.

I don't know the Koch brothers; I've never met them. I can't tell you if they're saints or sinners. But at least from this Bloomberg article, their company doesn't appear to be especially destructive or immoral. That much is crystal clear through some perspective. But maybe the reporters can prove me wrong about their bias by their next article detailing the many alleged misdeeds of a company with political ties to the left, like GE.

Update: ProPublica has a really great breakdown of the two biggest issues here, check it out.

Image Credit: AP/LARRY W. SMITH