Once he took over, it was clear that Charles had big plans for Koch Industries. He was going to push the limits of corporate growth by plowing 90% of the company’s profits back into till and diversifying to the max. It worked. The company expanded at an unreal rate: its revenues increased from $100 million in 1966 to $100 billion in 2008—that’s 1,000-fold growth!
Today, it operates thousands of miles of pipelines in the United States, refines 800,000 barrels of crude oil daily, it buys and sells the most asphalt in the nation, is among the top ten cattle producers, and is among the 50 largest landowners. Koch Industries also plowed hundreds of millions of dollars into right-wing organizations like Institute for Humane Studies, the Cato Institute, the Mercatus Center at George Mason University, the Bill of Rights Institute, the Reason Foundation, Citizens for a Sound Economy and the Federalist Society—all of them promoting the usual billionaire-friendly ideas of the free market, deregulation and smaller government.
If that expansion looks too fast to be legit, that’s because it was.
William Koch, the third brother who had a falling-out with Charles and David back in the ’80s over Charles’ sociopathic management style, appeared on “60 Minutes” in November 2000 to tell the world that Koch Industries was a criminal enterprise: “It was – was my family company. I was out of it,” he says. “But that’s what appalled me so much… I did not want my family, my legacy, my father’s legacy to be based upon organized crime.”
Charles Koch’s racket was very simple, explained William. With its extensive oil pipe network, Koch Industries’ role as an oil middleman–it buys crude from someone’s well and sells it to a refinery–makes it easy to steal millions of dollars worth of oil by skimming just a little off the top of each transaction, or what they call “cheating measurements” in the oil trade. According to William, wells located on federal and Native American lands were the prime targets of the Koch scam.
“What Koch was doing was taking all these measurements and then falsifying them on the run sheets,” said Bill Koch. “If the dipstick measured five feet 10 inches and one half inch, they would write down five feet nine and one half inches.”
That may not sound like much, but Bill Koch said it added up. “Well, that was the beauty of the scheme. Because if they’re buying oil from 50,000 different people, and they’re stealing two barrels from each person. What does that add up to? One year, their data showed they stole a million and a half barrels of oil.”
In 1999, William decided to take his brothers down. He sued Koch Industries in civil court under the False Claims Act, which allows whistleblowers to file suit on behalf of the federal government. William Koch accused the company of stealing hundreds of millions of dollars in oil from federal lands.
The band of brothers settled the case two years later, with Charles agreeing to pay $25 million in penalties to the federal government to have the suit dismissed. It turned out to be a great deal for Charles and David, considering that in the 1980s their “adjustments” allowed Koch Industries to siphon off 300 million gallons of oil without paying. It was pure profit–free money–to the tune of $230 million.
At the trial, 50 former Koch gaugers testified against the company, some in video depositions. They said employees even had a term for cheating on the measurements.
“We in the company referred to it as the Koch Method because it was a system for cheating the producer out of oil,” said one of the gaugers, Mark Wilson.
Ah, finally! We’ve stumbled upon the secret to the family’s success! At the bottom of it all, the Koch Method that funds all the libertarians is nothing but good old-fashioned plunder. Or, as Koch hero Ludwig von Mises might say, “The Koch Method is just an unceasing sequence of single scams.”
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