The Kochs commanded a sophisticated operation that had evolved over the years into a kind of shadow party, occupying its own center of gravity within the GOP universe. They controlled an extensive fund-raising network with the ability to drum up as much cash as the Republican National Committee itself. Through Americans for Prosperity, they had ground operations in all the competitive electoral states and a readymade corps of volunteers for get-out-the-vote efforts—what David called “a citizen’s army.” A web of other political and advocacy outfits, meanwhile, were under varying degrees of Koch control. The brothers had even spearheaded an effort to build a comprehensive database for voter microtargeting—an area where President Obama’s data-obsessed 2008 campaign had seriously outgunned the Republicans. Former Koch Industries executives ran the hush-hush operation, dubbed Themis after the Greek goddess of justice and divine order. It was a conscious effort to emulate the Democrats’ Catalist, a clearinghouse for voter data that was cofounded by former Bill Clinton aide Harold Ickes.
Observers of the Kochs’ political rise, from libertarian dilettantes to conservative powerbrokers, marvel at their ascent. “They were just gadflies; they had no political power,” the consultant who worked for Citizens for a Sound Economy in the 1990s said. “It is amazing to me how they’ve morphed and gone from spending money, hoping to have influence, to a point where they’re perceived to have influence. It took them… years to get to that point.”
Even prominent Democrats can’t help admiring what the Koch brothers have achieved. “The Kochs—with the team of strategists and organizational leaders they’ve financed—have done something that no other Americans have ever accomplished,” said Rob Stein, founder of the Democracy Alliance (the Democratic equivalent of the network controlled by the Kochs). “They began by building a distinct, durable wing—libertarianism—of a major political party that over the course of 35 years has become a dominant political force within Republicanism, and therefore within the country.
“They have accomplished this with deliberate strategic forethought, money, and superb organizing skills,” he continued. “They have been opportunistic. They have seeded and built idea and people networks that control the politics of over thirty states and the U.S. House of Representatives. It’s a brilliant, extraordinary accomplishment, and an unprecedented political phenomenon.”
For all its growing influence within the Republican Party, the Koch faction nevertheless occupied a somewhat tenuous place in the GOP. The brothers had their own political agenda, which in some cases clashed with the party line. They often aligned with the Republicans on free-market issues and downsizing government, but they fell on the other side of the political spectrum when it came to the social issues that animated the party’s powerful religious-conservative wing. Nor could Republicans count on the Kochs to fall in step on issues such as immigration, civil liberties, or defense, where they held more liberal views. The brothers and their company also opposed subsidies across the board, a position GOP members didn’t always share. “The Republicans don’t trust us,” said one Koch political operative.
The brothers’ government-spending zealotry also set them apart from the Republican mainstream. During the fight over raising the national debt ceiling that erupted in the summer of 2011, the Kochs’ Americans for Prosperity (and other groups aligned with the insurgent Tea Party) leaned on Republican lawmakers to hold firm in their opposition to raising the debt limit, while more pragmatic GOP organizations, including those associated with strategist Karl Rove, supported efforts by House Speaker John Boehner to broker a debt deal.
Occasionally, the Kochs seemed to work at cross-purposes with presumed allies. Their microtargeting operation, for instance, competed directly with a similar effort underwritten by the Republican National Committee called Data Trust; the brothers’ fund-raisers even canvassed some of the same donors Data Trust was soliciting, diluting the resources available for the party’s official effort. And the Kochs angered Mitt Romney’s campaign by holding one of their donor summits on the very same weekend when the candidate had scheduled a retreat for would-be campaign contributors.
In service of their larger goals, however, Charles and David’s network forged an uneasy alliance with groups across the GOP spectrum, including Rove’s American Crossroads super-PAC and its sister nonprofit, Crossroads GPS. In the lead-up to the midterms and again during the general election, emissaries of the Koch network attended meetings convened by Rove, where representatives of the GOP’s major outside political groups strategized. This informal coalition was known as the Weaver Terrace Group, because Rove first convened these meetings at his Weaver Terrace home in the tony Palisades neighborhood of Northwest Washington DC.
One of the Koch network’s liaisons to this ad hoc coordinating committee was a Phoenix-based political strategist named Sean Noble. A longtime congressional aide to Arizona Representative John Shadegg, Noble had flirted briefly with the idea of running for his boss’s seat when the Republican lawmaker announced his retirement in 2008. Instead, he followed the path of many Hill alums, opening a political consulting shop, DC London. Randy Kendrick, wife of Arizona Diamondbacks owner, Ken Kendrick, brought Noble into the Koch network.
Before the midterms, Noble, who was hired as a consultant to manage the network’s political spending, established a mysterious nonprofit called the Center to Protect Patient Rights. In documents filed with the Internal Revenue Service seeking tax-exempt status, Noble claimed the purpose of the organization was “building a coalition of like-minded organizations and individuals… to educate the public on issues related to health care with an emphasis on patients’ rights.”
In reality, the group acted as an ATM machine for dozens of conservative advocacy organizations. More than $200 million gushed into the nonprofit between late October 2009 (when Noble filed the paperwork to form it) and the fall of 2012; Noble dispensed this cash just as quickly as it arrived. The nonprofit formed one link in a daisy chain of trusts, LLCs, and nonprofits through which Koch network cash circulated en route to its final destination—one of any number of conservative political groups that included Americans for Prosperity, the Tea Party Patriots, the 60 Plus Association (a kind of right-wing counterpoint to the AARP), and many others. This elaborate system was designed to make it nearly impossible to trace contributions to their source. That’s what Kevin Gentry, Charles and David’s chief fund-raiser, had meant when he assured donors at the Vail meeting, “There is anonymity we can protect.”
The Kochs’ system for routing donor cash was more ingenious still. They created a 501(c)(6) nonprofit—typically used for business leagues and chambers of commerce—whose tax status could technically allow the Kochs and their donors to pour money into the political system and then write it off as a business expense. Originally headed by an ex-Koch lobbyist named Wayne Gable, this operation routed more than a quarter-billion dollars to Noble’s Center to Protect Patient Rights ($115 million), Americans for Prosperity ($32.3 million), and other groups in the year leading up to the 2012 election alone. The Kochs called their chamber of commerce the Association for American Innovation (it was later renamed Freedom Partners).
The Association for American Innovation was a cheeky moniker for a group bent on defeating the president, borrowing its name from an Obama administration economic policy called the “Strategy for American Innovation.” The Association for American Innovation’s founding documents, filed with the IRS, quoted the president and his strategy at length and suggested the group’s mission centered on advancing key aspects of the president’s policy. “This government policy and strategy is especially important today, when businesses, corporations, and even business innovation itself are under assault in the media and in the streets,” its mission statement read.
What the group didn’t say is that it planned to channel hundreds of millions of dollars into the 2012 elections in a bid to take down Obama and consolidate control of Congress. In fact, the Association for American Innovatio
n told the IRS that it didn’t expect to play in politics at all: “Though it does not presently intend to do so, AAI may, to an insubstantial extent, also conduct activities that might be viewed as supporting or opposing candidates for elective office.”
The Koch faction’s money, said the leader of one conservative nonprofit, always came with strings attached. “Nobody really works with them—they work for them, or they don’t work with them at all,” he said. “They are kind of creating a monopoly” and seeking to “make the conservative movement theirs.”
The brothers’ political advisors, including Kevin Gentry and Sean Noble, micromanaged the expenditure of donor funds, according to Republican operatives who have worked with them. “Sean Noble was down to editing direct mail copy,” said a conservative strategist. Along with designing mailers, Koch operatives supplied political ads and approved messaging to recipients of Koch network cash. “If you want the money, here’s what you’re going to do with it,” was the message from the brothers’ political adjutants, said the leader of the conservative nonprofit. “These are the scripts you’ll use.” A GOP activist, who was employed by a group that received Koch donor cash, called contributions from the Koch network “directed grants.”
Charles and David’s top-down control, a Republican operative pointed out, conflicted with the decentralized, Market-Based Management practices of their company. “I joke with people that Obama, OFA [Obama for America], these guys operate from very much an entrepreneurial approach to politics, to advance more government, more of a state. Then you have these guys on the other side who are claiming they want to see less government, less spending, more diversified control, power, and they come from very much a command and control [perspective] to supposedly advance free-market entrepreneurism. It’s ironic. It’s centralized power to promote decentralized power.”
The brothers closely monitored the groups they bankrolled. David, in particular, was known for asking probing questions of the leaders of these organizations. “You don’t talk broad brush with David,” said Nancy Pfotenhauer, the former Koch lobbyist who is a veteran of both Citizens for a Sound Economy and Americans for Prosperity. “You lose all credibility.”
Americans for Prosperity board member James Miller said David “really raises questions, and if he doesn’t get answers, he keeps boring in.” Miller said the brothers have succeeded in their public policy philanthropy “because they’ve really gone about this in a businesslike manner” and because “they are hardheaded about making sure that the organizations are managed effectively.”
But the brothers’ “managerial approach to the movement,” as Richard Wilcke, who headed the Koch-funded Council for a Competitive Economy, put it, has often caused friction. In the fall of 2011, Charles and David’s effort to assert their authority over one of the cornerstones of their ideological empire ignited a civil war on the Right.
On October 26, 2011, seventy-eight-year-old William Niskanen, a former economic advisor to Ronald Reagan and the chairman emeritus of the Cato Institute, died after suffering a major stroke. His death brought a long-running (and secret) dispute between the Kochs and the leadership of the Cato Institute to an unavoidable head.
At issue was the unusual corporate structure of Cato, which had shareholders, unlike most nonprofits. (Before Charles excommunicated Murray Rothbard from the think tank in 1981, the libertarian economist had been one of them.)
Cato presently had four shareholders, including the Koch brothers and Ed Crane, Cato’s cofounder and president. Niskanen was the fourth—and the question now was what would become of his stock. Would it pass to his widow, Kathryn Washburn, along with the rest of his estate? Or would it be handed back to Cato, leaving the Koch brothers in majority control? Ed Crane and Bob Levy, Cato’s current board chairman, supported the former scenario. The Kochs and their advisors took the position that the shares were nontransferable, meaning the brothers controlled two-thirds of Cato and had the power to appoint the majority of the board.
When Cato was founded in 1977, Charles had pressed for this shareholder structure, believing it would provide an additional lever of control. Even as the composition of Cato’s board changed over time, its shareholders could ensure that the institute never drifted from its founding mission of advancing libertarianism. Charles later organized the Council for a Competitive Economy in the same way. “We want to make sure that we’re not investing in something for ideological reasons that changes its focus,” Richard Wilcke recalled Charles telling him of the shareholder arrangement.
For close to two decades, Crane and other Cato officials had tried to persuade Charles to reorganize the institute under a more traditional scheme of nonprofit governance. Each time the subject came up, Charles refused. But the issue could no longer be ignored.
Crane feared Charles would use Niskanen’s death to make a play for control of the think tank. Charles and David had become politically toxic. The notion that they “owned” the think tank would soil its independent reputation. “Who the hell is going to take a think tank seriously that’s controlled by billionaire oil guys?” Crane wondered.
Relations between Ed Crane and Charles Koch had frayed dramatically since Cato’s founding. Before Richard Fink became Charles’s ideological soul mate, Crane had occupied this place in the CEO’s life. Crane called himself a “genetic libertarian.” He and Charles held nearly identical beliefs on personal liberties and free markets. Crane didn’t suck up to anyone—not politicians, not billionaires. Charles must have found this refreshing—at least at first. In the early years, as Cato got off the ground, the pair consulted by phone daily and they traveled together in the early 1980s to the Soviet Union and China to see the depredations of communism up close. But by 1991, their fifteen-year friendship had fallen apart. Charles resigned from Cato’s board and cut off his financial support. David, who joined the board in the 1980s, remained a director. The year Charles departed, he became a Cato shareholder.
Charles framed his split with Crane as a divergence of visions. He told libertarian historian Brian Doherty: “I have strong ideas, I want to see things go in a certain direction, and Crane has strong ideas. I concluded, why argue with Ed? Rather than try to modify his strategy, just go do my own thing and wish him well.”
The sudden unraveling of their friendship perplexed Crane: “I’ll go to my grave not knowing what happened.”
One Cato scholar described their rift this way: “It’s like a breakup. You kind of know what the reason was, but maybe you don’t really understand why it ended.”
Their friendship suffered a series of fractures before the final break. One came in the mid-1980s, when Charles was beginning to formalize his Market-Based Management theories and tried to implement them at Cato. At one point, Charles dispatched a team of Koch engineers to Washington to school Cato’s staff in his management practices.
“We’re all just looking at each other like, ‘What the hell is this about?’ ” Crane recalled. “These guys were engineers, and you could tell that they didn’t even understand what they were supposed to be teaching.” Crane resisted the Market-Based Management regime, and Charles grudgingly let the matter drop.
In September 1990, during a second trip to the Soviet Union, Crane and Koch had another run-in. Cato was holding a landmark conference in Moscow at the Academy of Sciences’ Uzkoe Hotel, where prominent Soviet scientists stayed during visits to the capital. The hotel was grim and worn, like a cut-rate college dormitory. Members of the Cato delegation were surprised to learn that the bedraggled building—which had three floors but whose elevator had buttons for ten—was less than two years old.
The signature event of the conference, dubbed “Transition to Freedom,” was an open forum for Soviet citizens. At least 1,000 people attended, crowding into a room with a capacity of 700. The atmosphere was electric, charged with a sense of dawning freedom. In Crane’s telling, the scene moved Charles so deeply that he approached Crane at the last minute to ask if he could speak at
the event. Crane, who’d painstakingly choreographed the program, was brusque. “Charles, we have negotiated every 30 seconds here,” Crane recalled telling him. “I can’t do that.”
Charles and Liz, who was traveling with her husband, departed Moscow the next day, cutting their trip short without explanation.
In Charles’s version of this story, he never asked to speak, though he did pull Crane aside with concerns about the conference agenda—that it didn’t delve deeply enough into the difficult transition from state-planned society to free-market economy. Crane, according to Charles, brushed these concerns aside.
Whatever took place, the conference formed a line of demarcation in their friendship. Political scientist Charles Murray, who presented there, recalled his surprise at Charles’s sudden departure. Members of the Cato group had planned a sightseeing trip to Leningrad, where Murray hoped to introduce some Russian acquaintances to a real American billionaire. “They really wanted to see the billionaire,” he recalled. Instead, he was forced to point out another wealthy member of their party: “That guy’s worth about $600 million.”
Murray remembered spending the evening before the citizens’ forum locked in boisterous debate with Ed Crane and Charles Koch over Saddam Hussein’s invasion of Kuwait the previous month. Crane and Koch, as usual, were simpatico: “I was being backed into a corner by both Charles and Ed because I was not as unequivocally anti-retaking Kuwait as they were.” He added, “Charles and Ed were as I had always seen them, which was a very joking, very warm relationship.… They were completely as they had always been.”
After Moscow, their relationship never recovered. By late 1990, the Rothbard-Rockwell Report, a libertarian newsletter authored by Murray Rothbard and former Ron Paul chief of staff Lew Rockwell, was gleefully reporting that Crane’s star had sunk within the Kochtopus, while Richard Fink’s had risen. “Richie, under Charles, now holds total power in Wichita,” Rothbard’s newsletter reported. It had to be true—Charles was no longer taking Crane’s calls.
Sons of Wichita: How the Koch Brothers Became America's Most Powerful and Private Dynasty Page 32