In an exclusive interview with Right Turn, Koch Industries general counsel Mark Holden responded to a lengthy investigative piece by Bloomberg Markets Magazine(“Bloomberg”) citing various legal incidents and allegations of wrongdoing by the industrial conglomerate owned by the billionaire Koch brothers, who have become the target, if not the obsession, of left-wing groups who take issue with their libertarian politics and political activity.
The two issues featured most prominently by the Bloomberg report, according to Holden, are rife with errors and/or are old, long-since resolved matters.
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.
Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention. Her superiors removed her from the inquiry in August 2008 and fired her in June 2009, calling her incompetent, even after Koch’s investigators substantiated her findings. She sued Koch-Glitsch in France for wrongful termination.
What is missing from this account? According to Holden, Koch-Glitsch completed its investigation and terminated the four employees involved. Egorova-Farines was not fired but instead ran into performance problems, left the company to go on leave and never returned. She sued the company and lost in French court. In an unusual move, she was ordered to pay costs for bringing a frivolous case.
Moreover, Holden said that Egorova-Farines did not promptly share her findings with her superiors and instead gave information to one of the managers, Leon Mausen, who was ultimately fired as one of the wrongdoers. These facts are specifically confirmed in a six-page French court decision, a copy of which was provided to me, in which her wrong- doing is amply documented. That case is now on appeal.
By failing to alert the company in a timely manner as to Mausen’s wrongdoing, the Koch subsidiary in a separate wrongful discharge suit by Mausen was forced to pay damages for not acting within 60 days of notice of wrongdoing.
Holden is dismissive of Bloomberg’s efforts to make this a centerpiece of a story. He told me that Koch “found out [about the wrongdoing] and took action and now we’re held up as a scofflaw.”
Perhaps the most serious allegation in Bloomberg’s piece concerns a Koch subsidiary that sold oil-refining equipment to Iran. The story’s flashy headline asserts: “Koch Brothers Flout Law With Secret Iran Sales.” But no laws were broken, the sales were stopped voluntarily and Koch and its subsidiaries, according to Holden, stopped doing any business with Iran long before some of Koch’s competitors.
Holden told me that the Koch subsidiary Koch-Glitsch over a nine- or 10-year period had sales of oil-refining process equipment that had “no military, weapons or nuclear application whatsoever.” The total sales at issue were approximately 15 million euros. At the time, this was legal. In fact, the Bloomberg article concedes, “Koch Industries took elaborate steps to ensure that its U.S.-based employees weren’t involved in the sales to Iran, internal documents show. Koch Industries may not have violated the law if no U.S. people or company divisions facilitated trades with Iran, says Avi Jorisch, a Treasury Department policy adviser from 2005 to 2008. That’s impossible to determine without a complete investigation, Jorisch says.” It not only “may not have” violated the law but it didn’t because no U.S. subsidiaries doing such business operated within U.S. law at the time.
Holden says in 2005 or 2006, prior to any change in law and without any request from the U.S. government, Koch management decided to stop doing any business with Iran. By contrast, GE continued to do business with Iran through foreign subsidiaries until 2008. Hewlett-Packard did likewise until 2009. Some Caterpillar subsidiaries continued to do business until early 2011.
Should none of these companies or their subsidiaries have done any business with the Iranian regime? From my perspective, I would certainly say that they should not have. But to single out Koch without putting its business and voluntary action in perspective seems designed to conform to a pre-existing story line.
There are a number of other highly questionable assertions in the Bloomberg piece. Take this ominous statement: “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.” Well, it’s a private company and has no obligation to account publicly for its profits. What exactly is the beef here?
In other cases, Bloomberg omits critical information, according to Holden. Bloomberg cites allegations in the Corpus Christie case that Koch falsely reported emissions to the government.. Holden told me that, in fact, Koch self-reported wrongdoing, but the prosecution elected to “overcharge” the company. Those excessive claims were later dropped by the prosecution (when its key witness admitted to never having personally visited the plant), and Koch paid the fine for the matter on which it originally self-reported.
Sometimes the omissions are comical. Bloomberg reports, “In 1997, a company now owned by ConocoPhillips sued Koch for toxic waste dumping at a refinery in Duncan, Oklahoma.” Holden explained that the issue concerns a refinery owned during the Truman and Eisenhower administrations. Because environmental laws hold companies strictly liable, Koch was required to pay 15 percent of the cleanup decades after it has ceased owning the facility.
In one sense, if in months and months of investigation, Bloomberg came up with less than a dozen cases, none of which is a current issue, Koch may be better run than most American conglomerates. It’s not unusual for multibillion dollar companies to have hundreds of litigation matters each year. What is missing in the Bloomberg report is any sense of proportion (and a good many qualifying facts) so that readers can assess whether Koch is better or worse than companies of its size.
Holden told me that each of these incidents is a serious concern for the company. As to a case cited by Bloomberg in which two teenagers were killed when a pipeline blew up, Holden said that was “a tragedy, unacceptable and awful.” (But it was also 12 years ago.)
Plainly, some members of the media and the Koch brothers’ political opponents are gunning for them. That’s the price one pays, I suppose, for being a visible billionaire. And, Koch’s assertions that it has a positive relationship with U.S. regulators does, ironically, suggest that a libertarian, no-regulation regime isn’t needed for business to prosper. That said, if Koch Industries is as bad as its critics say it is, you’d think its malfeasance would be provable by reporting that it’s so selective and obviously driven with a conclusion already in mind.