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Erik Wemple
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Posted at 02:10 PM ET, 10/25/2011

Bloomberg, Koch and Iran: Where’s the trade scandal?

Bloomberg Markets’ magazine story on the Koch brothers has already taken a beating. The Koch brothers themselves took aim, as did a fellow blogger here at The Washington Post, as did The Post’s ombudsman.

Now it’s my turn.

The scandal of this scandal story starts early on, via the headline:

Koch Brothers Flout Law Getting Richer With Secret Iran Sales

“Secret Iran Sales” — oooh! Comes off as sneaky and subversive, until you consider one important fact: Exports of U.S. companies aren’t routinely a matter of public record. It’s proprietary business information. A private outfit like Koch Industries Inc. has never had to share details on overseas customers, which means that the word “secret” here serves only to tar the company’s directors for adhering to common business practices.

Innocuous though it is, “secret” is the very worst thing that Bloomberg is able to establish about the Iran sales in its controversial Oct. 3 piece, which also addresses a number of other Koch business practices. And therein lies the lumpmeat injustice of the story: While Bloomberg breaks new ground on instances of corporate wrongdoing, it crams them into the same narrative of a company that is by all measures complying with trade restrictions vis-a-vis its sales to Iran.

Bloomberg’s interest in Koch is well placed. The company, a multinational beast that brings us such brands as Stainmaster carpets and Brawny paper towels, invites scrutiny from U.S. media outlets because its top dogs, brothers David and Charles, bankroll various right-wing causes in the United States.

The story deplores the fact that the company ever did business with Iran. Some key moments in the text:

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. . . .
For six decades around the world, Koch Industries has blazed a path to riches — in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions.

About this whole business of Koch Industries “thwarting a U.S. trade ban”: As the story itself makes plain, an equally accurate articulation would be that Koch Industries was “complying with a U.S. trade ban.”

Read all about U.S. trade controls toward Iran at the site of the Treasury Department’s Office of Foreign Assets Control. It administers a thoroughgoing embargo against Iran on exports and reexports of all kinds of goods and services. The regulations, however, do not apply to certain activities of foreign subsidiaries of U.S. companies, and that’s where the Koch brothers come into the picture.

Koch-Glitsch, a unit of the Koch brothers’ conglomerate, conducted business in Iran all the way through the mid-2000s. Bloomberg comes up with some fabulous reporting on this stuff:

Koch-Glitsch offices in Germany and Italy continued selling to Iran until as recently as 2007, the records show.
The company’s products helped build a methanol plant for Zagros Petrochemical Co., a unit of Iran’s state-owned National Iranian Petrochemical Co., the documents show. The facility, in the coastal city of Bandar Assaluyeh, is now the largest methanol plant in the world, according to IHS Inc., an Englewood, Colorado-based provider of chemicals, energy and economic data.

The story quotes former sales engineer George Bentu:

“Every single chance they had to do business with Iran, or anyone else, they did.”

Next in Bloomberg’s indictment of Koch conduct is this line:

Koch Industries took elaborate steps to ensure that its U.S.-based employees weren’t involved in the sales to Iran, internal documents show.

It mentions that a lawyer for the company sent an officious-sounding e-mail regarding protocols for sales to Iran:

“Your staff shall send this form to me since I have to send it to the lawyers in the USA as part of the compliance program. If somebody happens to find out that any U.S. persons are involved in this project or U.S. material is delivered to Iran you CANNOT quote.”

If you’re out to get the Koch brothers, that e-mail is a smoking gun. If you’re not out to get the Koch brothers, that e-mail is evidence that a U.S. company with foreign subsidiaries takes the necessary precautions to comply with U.S. law. Very restrictive U.S. law, I should add.

Omissions play a huge role in Bloomberg’s indictment of the Koch brothers’ sales with Iran. What Bloomberg fails to note is that the United States has for years maintained a unilateral embargo against Iran, meaning that suppliers in European and other countries have long been free to trade with the terrorism-supporting republic while U.S. companies are denied that opportunity. Upshot: If Koch-Glitsch hadn’t won all those deals that Bentu deplores, a competitor would have.

U.S. export law faces something of a pickle when it comes to foreign subsidiaries of U.S. companies, like Koch-Glitsch. Forcing them to comply with all the same restrictions as those binding on companies in the United States can put Washington at odds with its overseas allies. The exacting extraterritorial trade restrictions that the United States has placed on foreign subsidiaries vis-a-vis trade with Cuba, for instance, have caused diplomatic troubles with European allies, who resent Washington telling companies on their soil how they are to treat the Castro regime.

The slightly less restrictive policy against Iran lessens the prospect of trade frictions, even as it opens the door for companies like Koch-Glitsch to do business in Iran. This brings up another shortcoming of the Bloomberg treatment. The story appears to start from the premise that trade with a country like Iran, even when permitted by law, is morally objectionable.

For many transactions, it surely is. Any deal that boosts Tehran’s weapons arsenal deserves condemnation and the strictest treatment in export-control regulations. And on this front, U.S. law doesn’t disappoint, banning any transactions that even foreign subsidiaries have reason to believe will contribute to Iranian weapons of mass destruction.

Trade in products that fall shy of warlike poses a more complicated question. As the Bloomberg story makes clear, Koch-Glitsch assisted Iran with a plant that “helped Iran turn its vast natural gas reserves into methanol, which is used for making plastics, paints and chemicals.”

Iran makes a good rial off of methanol exports, so does that mean that the Koch-Glitsch deals were bad news? That’s one way of looking at it. Another: Bringing the Iranian petrochemical sector to its knees via trade controls would impoverish a class of Iranians and further isolate the regime from moderating influences.

Morality and export controls have a dysfunctional relationship. “Some people might say all Iran trade shouldn’t occur,” says Maarten Sengers, a D.C.-based trade consultant. “Likewise, you might want to ask, ‘Why can’t I export equipment for making formula for malnourished babies in Iran?’ To me, that’s ethical behavior, but that doesn’t mean you’re in compliance” with U.S. law.

Koch-Glitsch ultimately decided on its own to discontinue trade with Iran, a point that the Bloomberg story highlighted. (It featured extensive rebuttals from a Koch spokesperson.) And in the summer of 2010, the European Union tightened its trade restrictions with Iran, though not to the extent of the U.S. embargo. Iranian industry, accordingly, may have a tougher time nailing down optimal supplier arrangements in the future; but it should be fine, given the globe’s porous net of trade restrictions.

Though Bloomberg loaded its story with every achievable detail on Koch Industries’ encounters with investigators and the like, it couldn’t be bothered to contextualize international trade with Iran. Perhaps that’s because such a broader picture makes Koch’s actions appear reasonable and above board. Bloomberg declined to comment on its story.

By  |  02:10 PM ET, 10/25/2011

 
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