Dark Money

by Jane Mayer

  Energy magnates were also heavily represented in the Koch network. Many of this group too had significant government regulatory and environmental issues. The “extractive” industries, oil, gas, and mining, tend to be run by some of the most outspoken opponents of government regulation in the country, yet all rely considerably on government permits, regulations, and tax laws to aid their profits and frequently to give them access to public lands. Executives from at least twelve oil and gas companies, in addition to the Kochs, were participants in the group. Collectively, they had a huge interest in staving off any government action on climate change and weakening environmental safeguards. One prominent member of this group was Corbin Robertson Jr., whose family had built a billion-dollar oil company, Quintana Resources Capital. Robertson had bet big on coal—so big he reportedly owned what Forbes called the “largest private hoard in the nation—21 billion tons of reserves.” Investigative reports linked Robertson to several political front groups fighting efforts by the Environmental Protection Agency (EPA) to control pollution emitted by coal-burning utilities. Almost comically, one such front group was called Plants Need CO2.

  Another coal magnate active in the Kochs’ donor network was Richard Gilliam, head of the Virginia mining concern Cumberland Resources. The dire stakes surrounding the sinking coal industry’s regulatory fights were evident in the 2010 sale of Cumberland for nearly $1 billion to Massey Energy, just weeks before a tragic explosion in Massey’s Upper Big Branch mine killed twenty-nine miners, becoming the worst coal mine disaster in forty years. A government investigation into Massey found it negligent on multiple safety fronts, and a federal grand jury indicted its CEO, Don Blankenship, for conspiring to violate and impede federal mine safety standards, making him the first coal baron to face criminal charges. Later, Massey was bought for $7.1 billion by Alpha Natural Resources, whose CEO, Kevin Crutchfield, was yet another member of the Koch network.

  Several spectacularly successful leaders of hydraulic fracturing, who had their own set of government grievances, were also on the Kochs’ list. The revolutionary method of extracting gas from shale revived the American energy business but alarmed environmentalists. Among the “frackers” in the group were J. Larry Nichols, co-founder of the huge Oklahoma-based concern Devon Energy, and Harold Hamm, whose company, Continental Resources, was the biggest operator in North Dakota’s booming Bakken Shale. As Hamm, a sharecropper’s son, took his place as the thirty-seventh-richest person in America with a fortune that Forbes estimated at $8.2 billion as of 2015, and campaigned to preserve tax loopholes for oil producers, his company gained notoriety for a growing record of environmental and workplace safety violations.

  One shared characteristic of many of the donors in the Kochs’ network was private ownership of their businesses, placing them in a low-profile category that Fortune once dubbed “the invisible rich.” Private ownership gave these magnates far more managerial latitude and limited public disclosures, shielding them from stockholder scrutiny. Many of the donors had nonetheless attracted unwanted legal scrutiny by the government.

  It was, in fact, striking how many members of the Koch network had serious past or ongoing legal problems. Sheldon Adelson, founding chairman and chief executive of the Las Vegas Sands Corporation, the world’s largest gambling company, whose fortune Forbes estimated at $31.4 billion, was facing a bribery investigation by the Justice Department into whether his company had violated the Foreign Corrupt Practices Act in securing licenses to operate casinos in Macao.

  The Kochs had looming worries about the Foreign Corrupt Practices Act, too. As Bloomberg News later revealed, the company’s record of illicit payments in Algeria, Egypt, India, Morocco, Nigeria, and Saudi Arabia was spilling out in a French court. Further, in the summer of 2008, just a few months before Obama was elected, federal officials had questioned the company about sales to Iran, in violation of the U.S. trade ban against the state for sponsoring terrorism.

  Meanwhile, another donor, Oliver Grace Jr., a relation of the family that founded the William R. Grace Company, was at the center of a stock-backdating scandal that resulted in his being ousted from the board of Take-Two, the company behind the ultraviolent Grand Theft Auto video games.

  The legal problems of Richard Farmer, the chairman of the Cincinnati-based Cintas Corporation, the nation’s largest uniform supply company, included an employee’s gruesome death. Just before the new and presumably less business-friendly Obama administration took office, Cintas reached a record $2.76 million settlement with the Occupational Safety and Health Administration (OSHA) in six safety citations including one involving a worker who had burned to death in an industrial dryer. The employee, a Hispanic immigrant, had become caught on a conveyor belt leading into the heat source. Prior to the fatal accident, OSHA had cited Cintas for over 170 safety violations since 2003, including 70 that regulators warned could cause “death or serious physical harm.” As Obama took office, the company was still fighting against paying a damage claim to the employee’s widow and arguing that his death had been his own fault. Farmer, too, ranked among the Koch group’s billionaire donors, with a fortune that Forbes estimated at $2 billion.

  Given the participants’ unanimous espousal of antigovernment, free-market self-reliance, the network also included a surprising number of major government contractors, such as Stephen Bechtel Jr., whose personal fortune Forbes estimated at $2.8 billion. Bechtel was a director and retired chairman of the huge and internationally powerful engineering firm Bechtel Corporation, founded by his grandfather, run by his father, and, after he retired, by his son and grandson. Paternalistic and family-owned, Bechtel was the sixth-largest private company in the country, and it owed almost its entire existence to government patronage. It had built the Hoover Dam, among other spectacular public projects, and had storied access to the innermost national security circles. Between 2000 and 2009 alone, it had received $39.2 billion in U.S. government contracts. This included $680 million to rebuild Iraq following the U.S. invasion.

  Like so many of the other companies owned by the Koch donors, Bechtel had government legal problems. In 2007, a report by the special inspector general for Iraq reconstruction accused Bechtel of shoddy work. And in 2008, the company paid a $352 million fine to settle unrelated charges of substandard work in Boston’s notorious “Big Dig” tunnel project. The company was facing congressional reproach too for cost overruns in the multibillion-dollar cleanup of the Hanford nuclear facility in Washington State.

  Antagonism toward the government ran so high within the Koch network that one donor angrily objected to federal interference not just in his business but on behalf of his own safety as well. Thomas Stewart, who built his father’s Seattle-based food business into the behemoth Services Group of America, reportedly loved flying in his helicopter and corporate jet. But when a former company pilot refused to take his aeronautic advice because it violated Federal Aviation Administration regulations, according to an interview with the pilot in the Seattle Post-Intelligencer, Stewart “rose out of his chair, and screamed, ‘I can do any fucking thing I want!’ ”

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  The highlight of the Koch summit in 2009 was an uninhibited debate about what conservatives should do next in the face of their electoral defeat. As the donors and other guests dined in the hotel’s banquet room, like Roman senators attending a gladiator duel in the Forum, they watched a passionate argument unfold that encapsulated the stark choice ahead. Sitting on one side of a stage, facing the participants, was the Texas senator John Cornyn, the head of the National Republican Senatorial Committee and a former justice on the Texas Supreme Court. Tall, with a high pink forehead, puffy cotton-white hair, and a taste for dark pin-striped suits, his image conveyed his role as a pillar of the establishment wing of the Republican Party. Cornyn was rated as the second most conservative Republican in the Senate, according to the nonpartisan National Journal. But he also was, as one former aide put it, “very much a constitutionalist” who believed i
t was occasionally necessary in politics to compromise.

  Poised on the other side of the moderator was the South Carolina senator Jim DeMint, a conservative provocateur who defined the outermost antiestablishment fringe of the Republican Party and who in the words of one admirer was “the leader of the Huns.” Fifty-seven at the time, he was five months older than Cornyn, but his dark hair, lean build, and more casual, aw-shucks style made him appear years younger. Before his election to Congress, DeMint had run an advertising agency in South Carolina. He understood how to sell, and what he was pitching that night was an approach to politics that according to the historian Sean Wilentz would have been recognizable to DeMint’s forebears from the Palmetto State as akin to the radical nullification of federal power advocated in the 1860s by the Confederate secessionist John C. Calhoun.

  The two Republican senators had been at loggerheads for some time. That night they gave opposing opening statements. Cornyn spoke in favor of the Republican Party fighting its way back to victory by broadening its appeal to a wider swath of voters, including moderates. “He understands that Republicans in Texas and in Maine aren’t necessarily exactly alike,” the former aide explained. “He believes in making the party a big tent. You can’t win unless you get more votes.”

  In contrast, DeMint portrayed compromise as surrender. He had little patience for the slow-moving process of constitutional government. He regarded many of his Senate colleagues as timid and self-serving. The federal government posed such a dire threat to the dynamism of the American economy, in his view, that anything less than all-out war on regulations and spending was a cop-out. DeMint was the face of a new kind of extremism, and he spoke that evening in favor of purifying, rather than diluting, the Republican Party. He argued that he would rather have “thirty Republicans who believed in something than a majority who believed in nothing,” a line that was a mantra for him and that brought cheers and applause from the gathered onlookers. Rather than compromising their principles and working with the new administration, DeMint argued, Republicans needed to take a firm stand against Obama, waging a campaign of massive resistance and obstruction, regardless of the 2008 election outcome.

  As the participants continued to cheer him on, in his folksy, southern way, DeMint tore into Cornyn over one issue in particular. He accused Cornyn of turning his back on conservative free-market principles and capitulating to the worst kind of big government spending, with his vote earlier that fall in favor of the Treasury Department’s massive bailout of failing banks. The September 15, 2008, failure of Lehman Brothers, one of the nation’s largest investment banks, had triggered a stunning run on financial institutions and the beginning of a generalized panic. The Federal Reserve chairman, Ben Bernanke, warned congressional leaders that “it is a matter of days before there is a meltdown in the global financial system.” In hopes of staving off economic disaster, Bush’s Treasury Department begged Congress to approve the massive $700 billion emergency bailout known as the Troubled Asset Relief Program, or TARP.

  Both Obama and the Republican presidential nominee, John McCain, supported the emergency measure in the run-up to the 2008 election. But ever since, outraged opposition to the bailouts had built both from the public and from antigovernment, free-market conservatives like DeMint. Having expected a gentlemanly debate over the future of the Republican Party, Cornyn suddenly found himself on the defensive as the donors jeered and the moderator, Stephen Moore, a free-market gadfly and contributor to The Wall Street Journal’s editorial page, egged them on. The room started to explode. Rebuking Cornyn, one donor, Randy Kendrick, said, “You just keep electing RINOs!”—invoking the slur that Moore was said to have coined for squishy moderates who were, in his phrase, “Republicans in Name Only.”

  Sitting silently at a table in the front row through all of this were Charles Koch and his wife, Liz. No one came to Cornyn’s defense. It was widely assumed that the Kochs, as hard-core free-market enthusiasts, had opposed the huge government bailouts of the private sector. Later, many reporters assumed this too, ascribing the Kochs’ opposition to Obama as stemming from their principled disagreement over issues such as the TARP bailouts. But none of this was true. Had people checked the record carefully, they would have found it quite revealing. At first, the Kochs’ political organization, Americans for Prosperity (AFP), had in fact taken what appeared to be a principled libertarian position against the bailouts. But the organization quickly and quietly reversed sides when the bottom began to fall out of the stock market, threatening the Kochs’ vast investment portfolio. The market began to collapse on Monday, September 29, when, in the face of heavy opposition from conservatives, the House unexpectedly failed to pass the federal rescue plan. By the end of the day, the Dow Jones Industrial Average had fallen 777 points, losing 6.98 percent of its value. It was the stock market’s largest one-day point drop ever.

  Although some conservative groups and politicians such as DeMint still opposed the bailout, the market panic was enough to change many minds. Among those who flipped during the next forty-eight hours were the Kochs. Two days after the unexpected House vote, as the measure was about to be considered by the Senate, a list of conservative groups now supporting the bailouts was circulated behind the scenes to Republican legislators, in hopes of persuading them to vote for the bailouts. Among the groups now listed as supporters was Americans for Prosperity. Soon after, the Senate passed TARP with overwhelming bipartisan support, including that of John Cornyn. A source familiar with the Kochs’ thinking says that Americans for Prosperity’s flip-flop mirrored their own.

  But if the Kochs’ personal interest in protecting their portfolio had trumped their free-market principles, they weren’t about to mention it in front of a roomful of fired-up libertarians whose cash they wanted to combat Obama. So, although they could have changed the dynamic in the room instantly by speaking up, no one defended Cornyn or the idea of acting responsibly within the bounds of traditional, reasonable political opposition.

  Instead, the sentiment among the donors as the first Koch seminar of the Obama era came to an end was, as one witness put it, “like a bunch of gorillas beating their chests.” After hearing both sides out, the assembled guests chose the path of extremism.

  The Kochs had already concluded that they would need to resort to extraordinary political measures to achieve their goals. A few days before the January 2009 donor seminar, Charles and David Koch had privately weighed their options with their longtime political strategist in a meeting inside the black-glass fortress that served as Koch Industries’ corporate headquarters in Wichita, Kansas.

  As they later revealed in an interview with Bill Wilson and Roy Wenzl in The Wichita Eagle, after hearing Obama’s inauguration address, they agreed with their political adviser, Richard Fink, that America was on the road to ruin. Fink reportedly told the billionaire brothers, whose wealth, when combined, put at their disposal the single largest fortune in the world, that if they wanted to beat back the progressive tide that Obama’s election represented, it would take “the fight of their lives.”

  “If we’re going to do this, we should do it right, or not at all,” Fink said, according to the Wichita newspaper account. “But if we don’t do it right, or we don’t do it at all, we will be insignificant and we will just waste a lot of time, and I would rather play golf.”

  If the Kochs decided that they did want “to do it right,” however, as Fink put it, they should be prepared, he warned, because “it is going to get very, very ugly.”

  Advisers to Obama later acknowledged that he had no inkling of what he was up against. He had campaigned as a post-partisan politician who had idealistically taken issue with those who he said “like to slice and dice our country into red states and blue states.” He insisted, “We are one people,” the United States of America. His vision, like his own blended racial and geographic heredity, was of reconciliation, not division. Echoing these themes in his first inaugural address, Obama had chided “cynics,”
who, he said, “fail to understand…that the ground has shifted beneath them—that the stale political arguments that have consumed us for so long no longer apply.”

  The sentiment was laudable but, alas, wishful thinking. Had the newly sworn-in president looked down at the ground directly beneath his polished shoes as he delivered these optimistic words, he might have been wise to take note. The red-and-blue carpet on which he was standing, which had been custom made in accordance with a government contract, had been manufactured by Invista, a subsidiary of Koch Industries. In American politics, the Kochs and all they stood for were not so easy to escape.

  Part One

  Weaponizing Philanthropy

  The War of Ideas, 1970–2008

  CHAPTER ONE

  Radicals: A Koch Family History

  Oddly enough, the fiercely libertarian Koch family owed part of its fortune to two of history’s most infamous dictators, Joseph Stalin and Adolf Hitler. The family patriarch, Fred Chase Koch, founder of the family oil business, developed lucrative business relationships with both of their regimes in the 1930s.

  According to family lore, Fred Koch was the son of a Dutch printer and publisher who settled in the small town of Quanah, Texas, just south of the Oklahoma border, where he owned a weekly newspaper and print shop. Quanah, which was named for the last American Comanche chief, Quanah Parker, still retained its frontier aura when Fred was born there in 1900. Bright and eager to get out from under his overbearing old-world father, Fred once ran away to live with the Comanches as a boy. Later, he crossed the country for college, transferring from Rice in Texas to attend the Massachusetts Institute of Technology. There, he earned a degree in chemical engineering and joined the boxing team. Early photographs show him as a tall, formally dressed young man with glasses, a tuft of unruly curls, and a self-confident, defiant expression.