"The Kochs are our homegrown oligarchs; they've cornered the market on Republican politics and are nakedly attempting to buy Congress and the White House."

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Inside the Koch Brothers' Toxic Empire

Together, Charles and David Koch control one of the world's largest fortunes, which they are using to buy up our political system. But what they don't want you to know is how they made all that money

By Tim Dickinson, September 24, 2014

The enormity of the Koch fortune is no mystery. Brothers Charles and David are each worth more than $40 billion. The electoral influence of the Koch brothers is similarly well-chronicled. The Kochs are our homegrown oligarchs; they've cornered the market on Republican politics and are nakedly attempting to buy Congress and the White House. Their political network helped finance the Tea Party and powers today's GOP. Koch-affiliated organizations raised some $400 million during the 2012 election, and aim to spend another $290 million to elect Republicans in this year's midterms. So far in this cycle, Koch-backed entities have bought 44,000 political ads to boost Republican efforts to take back the Senate.

What is less clear is where all that money comes from. Koch Industries is headquartered in a squat, smoked-glass building that rises above the prairie on the outskirts of Wichita, Kansas. The building, like the brothers' fiercely private firm, is literally and figuratively a black box. Koch touts only one top-line financial figure: $115 billion in annual revenue, as estimated by Forbes. By that metric, it is larger than IBM, Honda or Hewlett-Packard and is America's second-largest private company after agribusiness colossus Cargill. The company's stock response to inquiries from reporters: "We are privately held and don't disclose this information."

But Koch Industries is not entirely opaque. The company's troubled legal history – including a trail of congressional investigations, Department of Justice consent decrees, civil lawsuits and felony convictions – augmented by internal company documents, leaked State Department cables, Freedom of Information disclosures and company whistle--blowers, combine to cast an unwelcome spotlight on the toxic empire whose profits finance the modern GOP.

Under the nearly five-decade reign of CEO Charles Koch, the company has paid out record civil and criminal environmental penalties. And in 1999, a jury handed down to Koch's pipeline company what was then the largest wrongful-death judgment of its type in U.S. history, resulting from the explosion of a defective pipeline that incinerated a pair of Texas teenagers.

The volume of Koch Industries' toxic output is staggering. According to the University of Massachusetts Amherst's Political Economy Research Institute, only three companies rank among the top 30 polluters of America's air, water and climate: ExxonMobil, American Electric Power and Koch Industries. Thanks in part to its 2005 purchase of paper-mill giant Georgia-Pacific, Koch Industries dumps more pollutants into the nation's waterways than General Electric and International Paper combined. The company ranks 13th in the nation for toxic air pollution. Koch's climate pollution, meanwhile, outpaces oil giants including Valero, Chevron and Shell. Across its businesses, Koch generates 24 million metric tons of greenhouse gases a year.

For Koch, this license to pollute amounts to a perverse, hidden subsidy. The cost is borne by communities in cities like Port Arthur, Texas, where a Koch-owned facility produces as much as 2 billion pounds of petrochemicals every year. In March, Koch signed a consent decree with the Department of Justice requiring it to spend more than $40 million to bring this plant into compliance with the Clean Air Act.

The toxic history of Koch Industries is not limited to physical pollution. It also extends to the company's business practices, which have been the target of numerous federal investigations, resulting in several indictments and convictions, as well as a whole host of fines and penalties.

And in one of the great ironies of the Obama years, the president's financial-regulatory reform seems to benefit Koch Industries. The company is expanding its high-flying trading empire precisely as Wall Street banks – facing tough new restrictions, which Koch has largely escaped – are backing away from commodities speculation.

It is often said that the Koch brothers are in the oil business. That's true as far as it goes – but Koch Industries is not a major oil producer. Instead, the company has woven itself into every nook of the vast industrial web that transforms raw fossil fuels into usable goods. Koch-owned businesses trade, transport, refine and process fossil fuels, moving them across the world and up the value chain until they become things we forgot began with hydrocarbons: fertilizers, Lycra, the innards of our smartphones.

The company controls at least four oil refineries, six ethanol plants, a natural-gas-fired power plant and 4,000 miles of pipeline. Until recently, Koch refined roughly five percent of the oil burned in America (that percentage is down after it shuttered its 85,000-barrel-per-day refinery in North Pole, Alaska, owing, in part, to the discovery that a toxic solvent had leaked from the facility, fouling the town's groundwater). From the fossil fuels it refines, Koch also produces billions of pounds of petrochemicals, which, in turn, become the feedstock for other Koch businesses. In a journey across Koch Industries, what enters as a barrel of West Texas Intermediate can exit as a Stainmaster carpet.

Koch's hunger for growth is insatiable: Since 1960, the company brags, the value of Koch Industries has grown 4,200-fold, outpacing the Standard & Poor's index by nearly 30 times. On average, Koch projects to double its revenue every six years. Koch is now a key player in the fracking boom that's vaulting the United States past Saudi Arabia as the world's top oil producer, even as it's endangering America's groundwater. In 2012, a Koch subsidiary opened a pipeline capable of carrying 250,000 barrels a day of fracked crude from South Texas to Corpus Christi, where the company owns a refinery complex, and it has announced plans to further expand its Texas pipeline operations. In a recent acquisition, Koch bought Frac-Chem, a top provider of hydraulic fracturing chemicals to drillers. Thanks to the Bush administration's anti-regulatory- agenda – which Koch Industries helped craft – Frac-Chem's chemical cocktails, injected deep under the nation's aquifers, are almost entirely exempt from the Safe Drinking Water Act.

Koch is also long on the richest – but also the dirtiest and most carbon-polluting – oil deposits in North America: the tar sands of Alberta. The company's Pine Bend refinery, near St. Paul, Minnesota, processes nearly a quarter of the Canadian bitumen exported to the United States – which, in turn, has created for Koch Industries a lucrative sideline in petcoke exports. Denser, dirtier and cheaper than coal, petcoke is the dregs of tar-sands refining. U.S. coal plants are largely forbidden from burning petcoke, but it can be profitably shipped to countries with lax pollution laws like Mexico and China. One of the firm's subsidiaries, Koch Carbon, is expanding its Chicago terminal operations to receive up to 11 million tons of petcoke for global export. In June, the EPA noted the facility had violated the Clean Air Act with petcoke particulates that endanger the health of South Side residents. "We dispute that the two elevated readings" behind the EPA notice of violation "are violations of anything," Koch's top lawyer, Mark Holden, told Rolling Stone, insisting that Koch Carbon is a good neighbor.

Over the past dozen years, the company has quietly acquired leases for 1.1 million acres of Alberta oil fields, an area larger than Rhode Island. By some estimates, Koch's direct holdings nearly double ExxonMobil's and nearly triple Shell's. In May, Koch Oil Sands Operating LLC of Calgary, Alberta, sought permits to embark on a multi-billion-dollar tar-sands-extraction operation. This one site is projected to produce 22 million barrels a year – more than a full day's supply of U.S. oil.

[major, major snippage]
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