Dark Money

by Jane Mayer

  In 1990, the brothers walked past one another with stony expressions at their mother’s funeral. Frederick, however, was absent. A confidant claimed later that Charles, who lived in Wichita, where their mother had died, hadn’t given him early enough notice about the funeral arrangements for him to be able to attend. There had been an ice storm in Chicago, which complicated his travel arrangements. In the end, Frederick was only able to arrive in Kansas in time to attend a reception after the service. “He was heartbroken,” the confidant said.

  Bill, too, nearly missed the funeral. He was given such short notice he had to charter a private plane to make it in time and then was seated not with the immediate family but with cousins. In addition, both he and Frederick believed they were excluded from a private memorial at their father’s ranch, arranged and attended by Charles and David.

  Then, when Mary Koch’s will was opened, it included a provision denying any inheritance from her $10 million estate to any son who was engaged in litigation against any other within six weeks of her death. Frederick and Bill, who were in the midst of suing their other two brothers, suspected their mother, who had suffered from dementia, had been unduly influenced during her fading days into adding this provision to her will. Again they sued, but lost, appealed, and lost again.

  Eventually, Frederick, who lived alone, spent much of his life abroad, buying and restoring spectacular historic estates in France, Austria, England, New York, and Pennsylvania and filling them with art, antiques, and literary manuscripts, many of which he donated to museums and rare book libraries. Unlike his brothers, Frederick preferred to keep most of his donations anonymous, explaining to friends that his father had taught them to be modest and that taking credit for charity was vulgar. He refused to speak to Charles for the rest of his life.

  Bill founded his own carbon-heavy energy company, Oxbow, becoming a billionaire in his own right, according to Forbes. He lived lavishly, spending an estimated $65 million to win yachting’s America’s Cup in 1992. Like his brothers, he was a major Republican donor and became embroiled in tumultuous legal fights against environmentalists, opposing a proposed wind farm in the waters off his Cape Cod summer compound, because it would interfere with his view. He, too, barely spoke to Charles for decades but gradually underwent a rapprochement with his twin, David.

  With Charles as the undisputed chairman and CEO, Koch Industries expanded rapidly. Roger Altman, who heads the investment-banking firm Evercore, described the company’s performance as “beyond phenomenal.” He added, “I’d love to know how they do it.” Much of the credit went to Charles, who won a reputation as a brilliant, detail-oriented, metrics-driven manager. He was such a tough negotiator, one associate joked, that “in a fifty-fifty deal, he takes the hyphen.”

  As the company grew, Charles remained in Wichita, working ten-hour days, six days a week. When he proposed to his future wife, Liz, he did so reportedly over the phone, and she could hear him flipping through his busy date book in search of an open day for the wedding. In preparation, he required her to study free-market economics.

  David, meanwhile, resided in New York City, where he became an executive vice president of the company and the CEO of its Chemical Technology Group. A financial expert who knows Koch Industries confided, “Charles is the company. Charles runs it.” David, described by associates as “affable” and “a bit of a lunk,” enjoyed for years the life of a wealthy bachelor. He rented a yacht in the South of France and bought a waterfront home in Southampton, where he threw parties that the Web site New York Social Diary likened to an “East Coast version of Hugh Hefner’s soirées.” David was known for his laugh, which has been described as a “window-shattering honk.” To one longtime family insider, however, he often seemed “a bit lost” and “socially awkward. People don’t really register with him that much,” she said. In 1991, he was badly injured in a plane crash in Los Angeles. He was the sole passenger in first class to survive. As he was recovering, a routine physical exam led to the discovery of prostate cancer. He received treatment and reconsidered his life. He got married, settled down, and started a family. As he told Upstart Business Journal, “When you’re the only one who survived in the front of the plane and everyone else died—yeah, you think, ‘My God, the good Lord spared me for some greater purpose.’ My joke is that I’ve been busy ever since, doing all the good work I can think of, so He can have confidence in me.”

  When they are not at their vacation houses in Southampton, Palm Beach, and Aspen, he and his wife, Julia Flesher, a former fashion assistant, live in a nine-thousand-square-foot duplex at 740 Park Avenue with their three children. The wealthiest resident of New York, David has become a huge benefactor of the arts and medicine, donating millions of dollars to Lincoln Center, the Metropolitan Museum of Art, and the American Museum of Natural History, among other institutions. But according to Park Avenue, a documentary by the Academy Award winner Alex Gibney, he has been less generous with the household help. A former doorman described Koch as “the cheapest person” in the building. “We would load up his trucks—two vans usually—every weekend for the Hamptons. In and out, in and out, heavy bags. We would never get a tip from Mr. Koch. We would never get a smile from Mr. Koch.” For Christmas, which the doorman had anticipated would make up for the year’s travails, Koch merely gave him a $50 check. When the documentary aired on the Public Broadcasting Service in 2012, David Koch was so incensed he resigned from the board of New York’s public television station, WNET, reneging on a promise to make a major donation. A spokeswoman at Koch Industries declined to comment on whether the documentary was his reason for punishing the station, but Koch bluntly told one friend about the film, “It’s going to cost them $10 million.”

  “They live, and always have, in a rarefied bubble,” said the longtime family insider, explaining the Kochs’ outrage at being subjected to critical scrutiny. “They move in a world with people like them, or who want to be. They know no poor people at all. They’re not the kind of people who feel obligated to get to know the help.”

  —

  As their fortunes grew, Charles and David Koch became the primary underwriters of hard-line libertarian politics in America. Though David’s manner is more cosmopolitan, and more sociable, than that of Charles, Doherty, the libertarian chronicler who has interviewed both brothers, couldn’t think of a single issue on which the brothers disagreed. Charles’s aim, he said, was to tear the government out “at the root.”

  Having read the family’s private letters and conducted interviews with the Kochs and their intimates as few other outsiders could, Clayton Coppin, the researcher hired first by the company and later by Bill Koch, saw Charles Koch’s strong political views in the context of his family upbringing. In “Stealth,” his unpublished 2003 report on Charles’s political development, Coppin suggests that Charles harbored a hatred of the government so intense it could only be truly understood as an extension of his childhood conflicts with authority.

  From his earliest years, he writes, Charles’s goal was to achieve total control. “He did not escape his father’s authority until his father died,” he notes. After that, Charles went to great lengths to ensure that neither his brothers nor anyone else could challenge his personal control of the family company. Later clashes with unionized workers at the Pine Bend Refinery and with the expanding regulatory state strengthened his resolve. “Only the governments and the courts remained as sources of authority,” Coppin writes, and if enacted, Charles’s “libertarian policies would eliminate these.”

  Had Charles wanted merely to promote free-market economic theories, he could have supported several established organizations, but instead he was attracted to fringe groups that bordered on anarchism. Coppin suggests, “He was driven by some deeper urge to smash the one thing left in the world that could discipline him: the government.”

  Drawing on a cache of private documents, some of which remain in the possession of Bill Koch, Coppin was able to trace Charles’s politi
cal evolution as he moved away from the intellectual fringe of his old mentor, LeFevre, in favor of gaining hands-on power. In response to libertarian thinkers who argued that ideas, not practical politics, were the best instruments of change, Charles wrote a revealing 1978 article in the Libertarian Review, arguing that outsiders like themselves needed to organize. “Ideas do not spread by themselves; they spread only through people. Which means we need a movement,” he wrote. His language was militant, demanding that “our movement must destroy the prevalent statist paradigm.”

  In Coppin’s view, it was already clear by this point, at the end of the 1970s, that Charles “was not going to be satisfied with being the Engels or even the Marx of the libertarian revolution. He wanted to be the Lenin.”

  Around the same time, an obscure conference subsidized by Charles Koch laid out much of the road map for the Kochs’ future attempted takeover of American politics. In 1976, with a contribution of some $65,000 from Charles Koch, the Center for Libertarian Studies in New York City was launched and soon held a conference featuring several leading lights of the libertarian movement. Among those delivering papers on how the fringe movement could obtain genuine power was Charles Koch. The papers are striking in their radicalism, their disdain for the public, and their belief in the necessity of political subterfuge. Speakers proposed that libertarians hide their true antigovernment extremism by banishing the word “anarchism,” because it reminded too many people of “terrorists.” To attract a bigger following, some suggested, they needed to organize synthetic “grassroots” groups and issue meaningless titles to volunteers, without yielding any real control.

  Charles Koch’s contribution was a paper that methodically analyzed the strengths and weaknesses of a group he knew intimately, the John Birch Society, as a model for their future enterprise. His assessment was clear-eyed and businesslike. He pointed out that despite the fringe group’s shortcomings, it boasted 90,000 members, 240 paid staffers, and a $7 million annual budget. While these numbers were impressive, he faulted the John Birch Society’s obsession with conspiracies, as well as the unchecked cult of personality that Welch had built up. He noted that Welch’s ownership of the organization’s stock had centralized control in his hands, making him impervious to constructive criticism. (Interestingly, Charles would go on to issue stock in his own nonprofit think tank, the Cato Institute, in much the same way.) But he also found much to admire. In particular, he argued in favor of copying the John Birch Society’s secrecy.

  “In order to avoid undesirable criticism, how the organization is controlled and directed should not be widely advertised,” Charles wrote, arguing for stealth in his future plans to influence American politics.

  He also wrote that to fund their future political enterprise, they should, like the John Birch Society, make use of “all modern sales and motivational techniques to raise money and attract donors…including meeting in a home or other place the prospect enjoys being.” The Kochs’ donor summits would follow this marketing approach, transforming fund-raising into exclusive, invitation-only social events held in luxurious settings.

  Charles cautioned his fellow radicals that to win, they would need to cultivate credible leaders and a positive image, unlike the John Birch Society, requiring them to “work with, rather than combat, the people in the media and arts.” The brothers followed this plan too. David became a lavish supporter of the arts in New York and appeared regularly in the society pages. Charles, meanwhile, kept a lower profile but assiduously invited sympathetic members of the media to his donor summits, such as the talk radio host Glenn Beck, the Washington Post columnist Charles Krauthammer, and the National Review columnist Ramesh Ponnuru. Two of the top donors in the Koch network owned their own news outlets. The oil tycoon Philip Anschutz owned the Washington Examiner and The Weekly Standard, and the mutual fund magnate Foster Friess was the largest shareholder of The Daily Caller. The Kochs seriously considered buying the Tribune Company in 2013, too.

  As for gaining adherents, Charles suggested, their best bet was to focus on “attracting youth” because “this is the only group that is open to a radically different social philosophy.” He would act on this belief in years to come by funneling millions of dollars into educational indoctrination, with free-market curricula and even video games promoting his ideology pitched to prospects as young as grade school.

  In support of building their own youth movement, another speaker, the libertarian historian Leonard Liggio, cited the success of the Nazi model. In his paper titled “National Socialist Political Strategy: Social Change in a Modern Industrial Society with an Authoritarian Tradition,” Liggio, who was affiliated with the Koch-funded Institute for Humane Studies (IHS) from 1974 until 1998, described the Nazis’ successful creation of a youth movement as key to their capture of the state. Like the Nazis, he suggested, libertarians should organize university students to create group identity.

  George Pearson, a former member of the John Birch Society in Wichita, who served as Charles Koch’s political lieutenant during these years, expanded on this strategy in his own eye-opening paper. He suggested that libertarians needed to mobilize youthful cadres by influencing academia in new ways. Traditional gifts to universities, he warned, didn’t guarantee enough ideological control. Instead, he advocated funding private institutes within prestigious universities, where influence over hiring decisions and other forms of control could be exerted by donors while hiding the radicalism of their aims.

  As Coppin summarized Pearson’s arguments, “It would be necessary to use ambiguous and misleading names, obscure the true agenda, and conceal the means of control. This is the method that Charles Koch would soon practice in his charitable giving, and later in his political actions.”

  —

  Soon after the 1976 conference, Charles plunged into Libertarian Party politics. He became not just the group’s financial angel but also the author of its plank on energy policy, which called for the abolition of all government controls. The brothers took an even more audacious step into electoral politics in 1979, when Charles, who preferred to operate behind the scenes, persuaded David, then thirty-nine, to run for public office. The brothers were by then backing the Libertarian Party’s presidential candidate, Ed Clark, who was running against Ronald Reagan from the right. They opposed all limits on campaign donations, so they found a legal way around them. They contrived to make David the vice presidential running mate, and thus according to campaign-finance law he could lavish as much of his personal fortune as he wished on the campaign rather than being limited by the $1,000 donation cap.

  “David Koch ran in ’80 to go against the campaign-finance rules. By being a candidate, he could give as much as he wanted,” the conservative activist Grover Norquist later acknowledged. “It was a trick,” suggests Bartlett, the economist who formerly worked at a Koch-funded think tank. David Koch had no political experience and was little known, which initially caused consternation. But at the Libertarian Party convention, when he pledged to spend half a million dollars on his campaign, whoops of joy reportedly rose from stunned party members. The ticket’s slogan was “The Libertarian Party has only one source of funds: You.” The populist language was misleading. In fact, its primary source of funds was David Koch, who spent more than $2 million on the effort, just short of 60 percent of the campaign’s entire budget.

  In hindsight, it seems that David Koch’s 1980 campaign served as a bridge between LeFevre’s radical pedagogy and the Tea Party movement. Indeed the Libertarian Party’s standard-bearer that year, Clark, told The Nation that libertarians were getting ready to stage “a very big tea party,” because people were “sick to death” of taxes. The party’s platform, meanwhile, was almost an exact replica of the Freedom School’s radical curriculum. It called for the repeal of all campaign-finance laws and the abolition of the Federal Election Commission (FEC). It also favored the abolition of all government health-care programs, including Medicaid and Medicare. It attacked Social Secu
rity as “virtually bankrupt” and called for its abolition, too. The Libertarians also opposed all income and corporate taxes, including capital gains taxes, and called for an end to the prosecution of tax evaders. Their platform called for the abolition too of the Securities and Exchange Commission, the Environmental Protection Agency, the FBI, and the CIA, among other government agencies. It demanded the abolition of “any laws” impeding employment—by which it meant minimum wage and child labor laws. And it targeted public schools for abolition too, along with what it termed the “compulsory” education of children. The Libertarians also wanted to get rid of the Food and Drug Administration, the Occupational Safety and Health Administration, seat belt laws, and all forms of welfare for the poor. The platform was, in short, an effort to repeal virtually every major political reform passed during the twentieth century. In the view of the Kochs and other members of the Libertarian Party, government should be reduced to a skeletal function: the protection of individual and property rights.

  That November, the Libertarian ticket received only 1 percent of the vote. Its stance against war and the military draft, and in favor of legalizing drugs and prostitution, won it some support among young rebels. But as a market experiment, libertarianism proved a massive flop. The brothers realized that their brand of politics didn’t sell at the ballot box. Charles Koch became openly scornful of conventional politics. “It tends to be a nasty, corrupting business,” he told a reporter at the time. “I’m interested in advancing libertarian ideas.”

  According to Doherty’s history, the Kochs came to regard elected politicians as merely “actors playing out a script.” Instead of wasting more time, a confidant of the Kochs’ told Doherty, the brothers now wanted to “supply the themes and words for the scripts.” In order to alter the direction of America, they realized they would have to “influence the areas where policy ideas percolate from: academia and think tanks.”