Drill down a little into the Koch brothers' black and unctuous oil industry past, and it won't be long before you find wholesale fraudulent business practices, deals with the godless Soviets, and orchestrated theft from Native Americans. And what rightwing self-proclaimed superpatriot would be worth his reputation if it wasn't for the coverup?
Dance with the Devil
The good news in 1929 for young MIT chemical engineer Fred Koch was that he had successfully developed a superior oil refinement process with a business partner. The bad news is that he had a bitter lesson to learn about his laissez-faire competitors when virtually every major US oil company gobsmacked him with 15 year's worth of patent infringement lawsuits. The net effect was that one cease-and-desist order after another was issued from the judge's bench, and until the legal process could sort itself out, Fred Koch was - for all practical purposes - aced out of the US oil market. And the bills still needed to be paid.
So what to do? Fortunately, the Unseen Hand pointed the way to Soviet Moscow, where totalitarian dictator Josef Stalin was rolling out his first Five Year Plan for sweeping industrialization. And he was especially interested in oil engineers.
"We are the world's greatest market, and we are prepared to order a large amount of goods and pay for them," - Josef Stalin, 1932
Fred Koch answered the call, and signed a $5 million deal in 1929 to build 15 refineries in the Soviet Socialistic Republic, thus providing a substantial wet kiss to the cause of worldwide socialism everywhere. Koch and his partner provided equipment and oversaw construction and installation, and quickly became Comrade Stalin's number one go-to refinery contractor.
Flouride in the Water
Koch Daddy Fred returned to Wichita, KS in 1933 having made $500,000 in profits through his business dealings with Josef Stalin. One might think that he would be graciously inclined towards the Soviet system, given that socialism treated him much better than his own litigious, monopolistic and cudgel-wielding US oil fraternity, but that was not the case. He hated the Soviets.
Not based much on logic or reason, mind you, but he hated them anyway. In 1961, Fred Koch's pamphlet, "A Businessman Looks at Communism", lends invaluable insight into Koch's thinking process on this. Long on alarmist rhetoric, broad, rambling generalizations, and less-than-logical conclusions, this work is unsettlingly reminiscent of Glenn Beck in many ways.
Koch's focus seems to be centered around one singular, eccentric individual and unlikely travelling companion - a Russian ex-pat Communist by the name of Jerome Livshitz. Livshitz took part in the 1905 revolution, and spent some time as a revolutionary in the US - mostly in jail. Although unconfirmed, the descriptions 'alcholic' and 'paranoid/schitzophrenic' have been attributed to Livshitz. Fred Koch apparently formulated his thought process about the clear and present danger of the Communist threat from listening to Livshitz, who would tell Koch how the Commies were going to infiltrate the US in schools, universities, armed forces, and "make you rotten to the core."
Whatever negative predispositions to Communism Koch may have had, he kept them to himself until 1956 - a period of time which nearly coincides perfectly with the timeframe during which he was still doing business with godless Stalin. After a business trip to Soviet Russia, Fred funded a John Birch Society chapter in Wichita and opened a Bircher bookstore, which ultimately closed.
"Maybe you don't want to be controversial by getting mixed up in this anti-communist battle," Koch said in said in a speech to a Women's Republican Club in 1961. "But you won't be very controversial lying in a ditch with a bullet in your brain."
While the once-influential John Birch Society eventually dwindled into conspiracy theories about flouride in the water - and sported bumper stickers like "Cut the Red China Connection", which persuaded their own fellow capitalists to hide them under the bed - the lessons of the generation were dutifully passed along to Fred Koch's sons.
Koch's Josef Stalin connection was the deal that got the Koch family fortune rolling downhill fast. Seemingly, Fred Koch came to the conclusion that ethics were optional when it came to the chase for the almighty
ruble dollar, and a few short years later, the Bush family apparently made a similar calculation when they signed a business compact with Adolph Hitler.
The "Koch Method"
Charles put 90 percent of Koch Industries' profits back into the company and diversified it greatly. The net result was a company which expanded at an unholy rate, with revenues increasing from $100 million in 1966 to $100 billion in 2008. An astounding 1,000 percent growth increase - almost sounds too good to be true.
Charles and David used the spinoff to operate thousands of miles of pipelines in the United States, refines 800,000 barrels of crude oil daily, buys and sells the most asphalt in the nation, is among the top 10 cattle producers, and is among the 50 largest landowners. Koch Industries also poured hundreds of millions of dollars into right-wing and libertarian organizations like Institute for Humane Studies, the Cato Institute, the Mercatus Center at George Mason University, the Bill of Rights Institute, the Reason Foundation, Citizens for a Sound Economy and the Federalist Society - all cheerleders for billionaires which promote free market legislation, deregulation, tax breaks and loopholes for the rich, and "smaller government".
Today, we hear about Charles and David Koch, but there's a third Koch brother - William. William wasn't the first to sue Charles and David for fraud, but his 1999 court action ended the most conclusively and dramatically. Ten years earlier, in 1989, William Koch was involved in a filing on the behalf of Native American Nations against Charles and David, but the interesting civil suit was when William sued his brothers personally for fraud in 1999.
William had ethical differences with Charles and David back in the '80s over Charles' "sociopathic management style". His message on "60 Minutes II" in November 2000 was to tell the world that Koch Industries was a criminal enterprise.
It was – was my family company. I was out of it," he says. "But that’s what appalled me so much... I did not want my family, my legacy, my father’s legacy to be based upon organized crime". - William Koch, 27 Nov 2000, 60 Minutes II
The fraud was perpetrated by doctoring the oil measurements. If the oil depth on your lands were really 7'3", Koch Industries guagers were told to report it as 7'1", and Koch would pocket the remainder. Koch would perpetrate this fraud largely on Federal and Native American lands, and it added up to hundreds of millions of dollars a year. 50 former Koch gaugers testified against the company, some in video depositions.
"We in the company referred to it as the 'Koch Method' because it was a system for cheating the producer out of oil," - Koch Industries gauger Mark Wilson
Coverups? We have that too. Federal magistrate Sam A. Joyner found Koch Industries to be guilty of "negligence [which] resulted in the destruction of computer files containing information relevant to the issues in this litigation at a time when Koch Industries had a duty to preserve those files," the plaintiffs of the first suit allege. Joyner is currently considering sanctions against the company for its conduct. It's the coverup, stupid, and it wasn't the first time for Koch. Koch’s Petroleum Group was fined 20 million dollars after it released huge amounts of cancer-causing benzene from a Texas refinery and then tried to cover it up.
In a legal maneuver only possible for the obscene rich, Charles and David settled out of court for $25 million - a tiny fraction of the amount they stole, and may continue to perpetrate the same fraud today. Do not be proven guilty, do not incur an inordinate amount of negative publicity, and do not go to jail.
Blood and oil. Oil and blood. Bad things go better with Koch.