Dark Money

by Jane Mayer

  Diane Hendricks, the richest woman in Wisconsin and another of the Kochs’ million-dollar donors, might also have stayed beneath the radar except for a documentary filmmaker who fortuitously caught her on camera. Fifteen days after Walker was inaugurated, in January 2011, Hendricks was captured in what she thought was a private chat, urging the governor to go after the unions. Looking glamorous but impatient, the sixty-something widow pressed Walker to turn Wisconsin into a “completely red” “right-to-work” state. Walker assured her that he had a plan. He had kept voters in the dark about it during his campaign, but he confided to Hendricks that his first step was to “deal with collective bargaining for all public employees’ unions.” This, he assured her, would “divide and conquer” the labor movement. Evidently, this was what Hendricks wanted to hear. She had amassed a fortune estimated at $3.6 billion from ABC Supply, the nation’s largest wholesale distributor of roofing, windows, and siding, which she and her late husband, Ken, founded in 1982. Despite her phenomenal success, Hendricks said she was worried that America was becoming “a socialist ideological nation.” Soon after the governor reassured her that he shared her concern, Hendricks and her company began a series of record-setting contributions that would reportedly make her Walker’s biggest financial backer.

  When Walker “dropped the bomb” on the unions, as he put it, he effectively stripped most state employees of the right to bargain collectively on their pay packages. He singled out the public employees, and particularly teachers, whose average salary was $51,264, as causes of the state’s deficit. Amid the doomsday talk about overindulged and under-contributing public workers who were bankrupting the state, one awkward fact went unmentioned. Thanks to complicated accounting maneuvers, Diane Hendricks, according to state records, did not pay a dime in personal state income taxes in 2010.

  Lines were drawn in Madison. In a desperate attempt to deprive Republicans of the quorum necessary to pass Walker’s anti-union bill, Democratic legislators fled the state. Angry activists stormed the legislature, thronged the streets, and lambasted Walker as the Kochs’ anti-union stooge. Walker unwittingly lent credence to the caricature less than a month into his tenure by carrying on a long, cringe-worthy phone conversation with a prankster pretending to be David Koch, the contents of which were soon made public. In a phrase that said all too much, Walker enthusiastically signed off with the impostor by saying, “Thanks a million!”

  As the furious backlash against Walker evolved into a prolonged and ultimately unsuccessful effort by his critics to recall him from office, the Kochs, who by then had become the face of the opposition, mounted a fierce counterattack. They used Americans for Prosperity and other vehicles to mobilize pro-Walker rallies and air thousands of “Stand with Walker” and “It’s Working!” television and radio ads. They also utilized Themis, a high-tech data bank they had developed, to help get out the vote.

  After Walker triumphed in the recall fight, putting him in line for his ill-fated run for the White House in 2016, an independent counsel’s investigation into possible campaign-finance violations disgorged a trove of e-mails revealing just how many hugely wealthy, out-of-state hidden hands were involved in his campaign to stay in office. The e-mails revealed advisers to Walker scheming to get the Kochs and allied donors to help him by donating to what purported to be an independent group, the Wisconsin Club for Growth. One e-mail suggested, “Take Koch’s money.” Another insisted that the governor should “get on a plane to Vegas and sit down with Sheldon Adelson.” It went on, “Ask for $1m now.” A third advised Walker that Paul Singer, the hedge fund mogul, would be at the same resort as he and insisted, “Grab him.” Soon after, the Wisconsin Club for Growth received $250,000 from Singer.

  At the helm of the Wisconsin Club for Growth, and thus at the center of the web, was an old ally of the Kochs’, Eric O’Keefe. He was the same Wisconsin investor who had volunteered in David Koch’s ill-fated Libertarian campaign for vice president, before going on to run the Sam Adams Alliance, which had played a seminal role in launching the Tea Party movement, and join the Cato Institute’s board. Over the years, O’Keefe’s various political gambits had also been greatly aided by the Bradley Foundation. According to one tally, it contributed over $3 million to groups directed or founded by O’Keefe between 1998 and 2012. The Bradley Foundation, meanwhile, tightened its ties to several members of the Kochs’ circle. It soon added to its board both Diane Hendricks and Art Pope, the Kochs’ longtime North Carolina ally, who also was on the board of Americans for Prosperity. The club that O’Keefe and the others belonged to was ingrown and small, but its reach was growing.

  Richard Fink made clear what the stakes were for both himself and his benefactors after the embarrassment of the trick phone call. “We will not step back at all,” he proclaimed. “With the Left trying to intimidate the Koch brothers to back off of their support for freedom and signaling to others that this is what happens if you oppose the administration and its allies, we have no choice but to continue the fight.” Fink defiantly claimed, “This is a big part of our life’s work. We are not going to stop.”

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  Buoyed by their success in Wisconsin, the Kochs began to focus in earnest on the presidential race. It had taken years, but by 2012 they were becoming a rival center of power to the Republican establishment. Political insiders who had once scoffed at them now marveled at the breadth of their political operation.

  While amassing one of the most lucrative fortunes in the world, the Kochs had also created an ideological assembly line justifying it. Now they had added a powerful political machine to protect it. They had hired top-level operatives, financed their own voter data bank, commissioned state-of-the-art polling, and created a fund-raising operation that enlisted hundreds of other wealthy Americans to help pay for it. They had also forged a coalition of some seventeen allied conservative groups with niche constituencies who would mask their centralized source of funding and carry their message. To mobilize Latino voters, they formed a group called the Libre Initiative. To reach conservative women, they funded Concerned Women for America. For millennials, they formed Generation Opportunity. To cover up fingerprints on television attack ads, they hid behind the American Future Fund and other front groups. Their network’s money also flowed to gun groups, retirees, veterans, antilabor groups, antitax groups, evangelical Christian groups, and even $4.5 million for something called the Center for Shared Services, which coordinated administrative tasks such as office space rentals and paperwork for the others. Americans for Prosperity, meanwhile, organized chapters all across the country. The Kochs had established what was in effect their own private political party.

  Secrecy permeated every level of the operation. One former Koch executive, Ben Pratt, who became the chief operating officer of the voter data bank, Themis, used a quotation from Salvador Dalí on his personal blog that could have served as the enterprise’s motto: “The secret of my influence is that it has always remained secret.”

  Robert Tappan, a spokesman for Koch Industries, defended the secrecy as a matter of security, because “Koch has been targeted repeatedly in the past by the Administration and its allies because of our real (or, in some cases, perceived) beliefs and activities concerning public policy and political issues,” overlooking decades of secrecy from the John Birch Society onward.

  This consolidation of power reflected the overall national trend of increasingly large and concentrated campaign spending by the ultra-wealthy in the post–Citizens United era. The spending, in turn, was a reflection of the growing concentration of wealth more generally in America. As a result, the 2012 election was a tipping point of sorts. Not only was it by far the most expensive election in the country’s history; it was also the first time since the advent of modern campaign-finance laws when outside spending groups, including super PACs and tax-exempt nonprofit groups, flush with unlimited contributions from the country’s richest donors, spent more than $1 billion to influence federal elections. And w
hen the spending on attack ads run by nonprofits was factored in, outside spending groups might well have outspent the campaigns and the political parties for the first time.

  The Koch network loomed as a colossus over this new political landscape. On the right, there were other formidable donor networks, including the one assembled by Karl Rove, but no single outside group spent as much. On its own, in 2012 the Kochs’ network of a few hundred individuals spent at least $407 million, almost all of it anonymously. This was more than John McCain spent on his entire 2008 presidential bid. And it was more than the combined contributions to the two presidential campaigns made by 5,667,658 Americans, whose donations were legally capped at $5,000. Politico’s Kenneth Vogel crunched the numbers and discovered that in the presidential race the top 0.04 percent of donors contributed about the same amount as the bottom 68 percent. No previous year for which there were data had shown more spending by fewer people. The staggeringly lopsided situation made 2012 the starkest test yet of Louis Brandeis’s dictum that the country could have either “democracy, or we may have wealth concentrated in the hands of a few,” but not both.

  The Kochs’ growing clout was evident in a confidential internal Romney campaign memo dated October 4, 2011. Romney, like virtually every ambitious Republican in the country, was angling for David Koch’s support. The memo described him plainly as “the financial engine of the Tea Party,” although it noted that he “denies being directly involved.”

  Romney, it revealed, had hoped to woo Koch in a private tête-à-tête at the billionaire’s beachfront mansion in Southampton, New York, over the summer. But to the campaign’s dismay, Hurricane Irene had washed the meeting out. With the Iowa caucuses looming, and Chris Christie out of the race, Romney tried again in the fall.

  Shortly after the memo was written, Romney took two controversial campaign stances that were guaranteed to please the billionaire brothers. First, he reversed his earlier position on climate change. In his 2010 book, No Apology, Romney had written, “I believe that climate change is occurring—the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor.” When he hit the campaign trail in June of 2011, Romney reiterated this view and stressed that it was “important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change and the global warming that you’re seeing.” But at a rally in Manchester, New Hampshire, in late October, he suddenly declared himself a climate change skeptic. “My view is that we don’t know what’s causing climate change on this planet,” he said. “And the idea of spending trillions and trillions of dollars to try to reduce CO2 emissions is not the right course for us,” he declared. By the time he accepted the Republican nomination in Tampa the following summer, Romney treated the notion of acting on climate change as a joke. “President Obama promised to begin to slow the rise of the oceans. And to heal the planet,” he mocked. “My promise is to help you and your family.”

  A week after first reversing himself on climate change, Romney skipped a campaign event attended by every other Republican presidential candidate in Iowa in order to speak at Americans for Prosperity’s annual Defending the American Dream summit in Washington. There he delivered a keynote address that could have passed as an audition for David Koch, who was in the audience. Romney had governed Massachusetts as a northeastern moderate, but now he unveiled a budget plan reminiscent of Paul Ryan’s.

  Soon afterward, Romney proposed to cut all income tax rates by one-fifth. According to the nonpartisan Tax Policy Center, Romney’s proposal would save those in the top 0.1 percent an average of $264,000 a year, and the poorest 20 percent of taxpayers an average of $78. The middle class would get on average $791. Romney also proposed other items high on his donors’ wish lists, including eliminating estate taxes, lowering the corporate tax rate, and ending taxes owed by companies that had shipped operations overseas. Taken as a whole, the Tax Policy Center said the proposal would add $5 trillion to the deficit over the next decade. Romney said he would make up the difference by closing unspecified tax loopholes.

  Charles Koch often described his support for slashing taxes as motivated by a concern for the poor. “They’re the ones that suffer” from “bigger government,” he argued in an interview with his hometown paper. Yet there was no getting around the fact that the numbers added up to a disproportionately huge gift to the already rich. “These guys all talk about the deficit, but there’s not a single tax benefit for the wealthy they’ll get rid of,” Dan Pfeiffer, Obama’s former communications adviser, later pointed out. “What really made them furious,” he said, “was when we started talking about closing the loopholes for private jets!”

  If these policy shifts were designed in part to win the Kochs’ support, they succeeded. By July, David Koch not only embraced Romney but threw a $75,000-per-couple fund-raiser for him at his Southampton estate. Romney and Koch were described as exuding a “confident glow” as they and their wives descended the stairs following a private half-hour chat before the other guests arrived. A few weeks later, Romney chose Ryan as his running mate. The pick was opposed by Romney’s campaign consultant, Stuart Stevens, and proved baffling to Obama because of the unpopularity of Ryan’s extreme budget plan. But conservative donors, including David Koch and his wife, Julia, had lobbied for Ryan. It was one more indication that an invisible wealth primary was shaping the discourse and the field long before the rest of the country had the chance to vote.

  With two of the largest fortunes in the world at their disposal—together worth an estimated $62 billion by 2012—Charles and David Koch were perfectly positioned to take advantage of the growing importance of money in American politics. Yet the presidential campaign still proved difficult for them to manage. With the eclipse of the party professionals by outside funders, virtually any novice with enough cash, including other donors in their own circle, could now disrupt the process.

  As the presidential race began, Sean Noble was arguing to anyone in the Koch fold who would listen that it was time to “pull the trigger” on Newt Gingrich. The former Speaker of the House from Georgia had reinvented himself as a long-shot Republican presidential candidate. Even some of the conservatives who had been part of Gingrich’s revolution in the House in the 1990s were privately begging the Koch operatives to act before Gingrich did irreparable damage to the other Republican candidates and the party. Gingrich was a brilliant force of entropy, dazzlingly eloquent on some occasions, utterly daft on others, and ruthlessly destructive to anyone in his path. For him, politics was total war, and he had the scars to prove it.

  In preparation, Noble’s firm quietly produced what it hoped was a lethal television ad using footage from a 2008 ad showing Gingrich sitting on a dainty love seat with Nancy Pelosi, agreeing that they needed to fight global warming. On the Republican side, it would have proved pure poison. But Noble couldn’t get authorization to air it. The hesitation appeared related to the addition of Sheldon Adelson, the enormously wealthy casino mogul, to the Koch circle.

  Sheldon Adelson, whom President George W. Bush once reportedly described as “this crazy Jewish billionaire, yelling at me,” wasn’t exactly the Kochs’ type. He was a hard-right foreign policy hawk who was focused on ensuring the security of Israel. He had been a Democrat, but he shared the Kochs’ antipathy toward labor unions, Obama, and redistributive income taxes. “Why is it fair that I should be paying a higher percentage of taxes than anyone else?” he once complained. Perhaps more important, with a fortune estimated in 2011 at $23.3 billion, the seventy-eight-year-old chairman of the Las Vegas Sands Corporation brought a lot of chips to the table. He could potentially increase the power of the Koch donor network exponentially. The Kochs had repeatedly invited Adelson to join their group but gotten nowhere. So when he finally showed up for the first time at their January 2012 summit in Indian Wells, California, they were not eager to trash his favorite candidate, who happened to be Gin
grich.

  “There were a lot of them who were pretty unhappy with Sheldon,” a Koch confidant says, “but Newt pushed all his buttons.” The odd couple had been friends for decades, bonding in the 1990s when Gingrich helped Adelson prevail in a bitter war to keep his casino operation, unlike the others in Las Vegas, union-free. They also shared a deep commitment to Israel’s hard-line conservatives, especially its prime minister, Benjamin Netanyahu, with whom an associate says Adelson often spoke several times a week. Adelson had lavished millions of dollars on Gingrich during his precipitous ups and downs. Calling himself “just a loyal guy,” Adelson continued that support after Gingrich was forced to resign from office in 1999 amid ethics charges and an insurrection within his own ranks. Long after the center of political gravity had shifted elsewhere, Adelson continued to loan Gingrich his private jets and contributed nearly $8 million to the nest of ventures that kept Gingrich employed.

  But there was one touchy Israel-related issue on which the old friends disagreed. Adelson had long sought clemency for Jonathan Pollard, the Jewish American spy convicted of passing state secrets to Israel, who was serving a life sentence in federal prison. In the past, Gingrich had called Pollard “one of the most notorious traitors in U.S. history” and scuttled a Clinton-era deal to release him. If freed, Gingrich warned, Pollard might “resume his treacherous conduct and further damage the national security of the United States.” But in December 2011, as Gingrich was heading into the Iowa caucuses in desperate need of cash, he switched his position. In an interview with the Jewish Channel, he announced that he now had “a bias in favor of clemency” for Pollard. Within weeks, Adelson donated $5 million to Gingrich’s sputtering campaign, which otherwise in all likelihood would have fizzled out.

  Adelson’s cash temporarily revived Gingrich, unleashing a chain of unintended consequences. The pro-Gingrich super PAC used the casino magnate’s money to purchase more than $3 million in advertising time in South Carolina. Then it aired a half-hour video called “King of Bain: When Mitt Romney Came to Town” that eviscerated Romney as a greedy, “predatory corporate raider.” After the video was attacked, Gingrich called on the super PAC to take it down but not before he amplified the message by denouncing Bain Capital, the private equity company that Romney had co-founded, as “rich people figuring out clever ways to loot a company.”