August 25th, 2010 6:56 AM

After the 1980 election, Charles and David Koch receded from the public arena. But they poured more than a hundred million dollars into dozens of seemingly independent organizations. Tax records indicate that in 2008 the three main Koch family foundations gave money to thirty-four political and policy organizations, three of which they founded, and several of which they direct. The Kochs and their company have given additional millions to political campaigns, advocacy groups, and lobbyists. The family’s subterranean financial role has fuelled suspicion on the left; Lee Fang, of the liberal blog ThinkProgress, has called the Kochs “the billionaires behind the hate.”

Only the Kochs know precisely how much they have spent on politics. Public tax records show that between 1998 and 2008 the Charles G. Koch Charitable Foundation spent more than forty-eight million dollars. The Claude R. Lambe Charitable Foundation, which is controlled by Charles Koch and his wife, along with two company employees and an accountant, spent more than twenty-eight million. The David H. Koch Charitable Foundation spent more than a hundred and twenty million. Meanwhile, since 1998 Koch Industries has spent more than fifty million dollars on lobbying. Separately, the company’s political-action committee, KochPAC, has donated some eight million dollars to political campaigns, more than eighty per cent of it to Republicans. So far in 2010, Koch Industries leads all other energy companies in political contributions, as it has since 2006. In addition, during the past dozen years the Kochs and other family members have personally spent more than two million dollars on political contributions. In the second quarter of 2010, David Koch was the biggest individual contributor to the Republican Governors Association, with a million-dollar donation. Other gifts by the Kochs may be untraceable; federal tax law permits anonymous personal donations to politically active nonprofit groups.

In recent decades, members of several industrial dynasties have spent parts of their fortunes on a conservative agenda. In the nineteen-eighties, the Olin family, which owns a chemicals-and-manufacturing conglomerate, became known for funding right-leaning thinking in academia, particularly in law schools. And during the nineties Richard Mellon Scaife, a descendant of Andrew Mellon, spent millions attempting to discredit President Bill Clinton. Ari Rabin-Havt, a vice-president at the Democratic-leaning Web site Media Matters, said that the Kochs’ effort is unusual, in its marshalling of corporate and personal funds: “Their role, in terms of financial commitments, is staggering.”

Of course, Democrats give money, too. Their most prominent donor, the financier George Soros, runs a foundation, the Open Society Institute, that has spent as much as a hundred million dollars a year in America. Soros has also made generous private contributions to various Democratic campaigns, including Obama’s. But Michael Vachon, his spokesman, argued that Soros’s giving is transparent, and that “none of his contributions are in the service of his own economic interests.” The Kochs have given millions of dollars to nonprofit groups that criticize environmental regulation and support lower taxes for industry. Gus diZerega, the former friend, suggested that the Kochs’ youthful idealism about libertarianism had largely devolved into a rationale for corporate self-interest. He said of Charles, “Perhaps he has confused making money with freedom.”

Some critics have suggested that the Kochs’ approach has subverted the purpose of tax-exempt giving. By law, charitable foundations must conduct exclusively nonpartisan activities that promote the public welfare. A 2004 report by the National Committee for Responsive Philanthropy, a watchdog group, described the Kochs’ foundations as being self-serving, concluding, “These foundations give money to nonprofit organizations that do research and advocacy on issues that impact the profit margin of Koch Industries.”

The Kochs have gone well beyond their immediate self-interest, however, funding organizations that aim to push the country in a libertarian direction. Among the institutions that they have subsidized are the Institute for Justice, which files lawsuits opposing state and federal regulations; the Institute for Humane Studies, which underwrites libertarian academics; and the Bill of Rights Institute, which promotes a conservative slant on the Constitution. Many of the organizations funded by the Kochs employ specialists who write position papers that are subsequently quoted by politicians and pundits. David Koch has acknowledged that the family exerts tight ideological control. “If we’re going to give a lot of money, we’ll make darn sure they spend it in a way that goes along with our intent,” he told Doherty. “And if they make a wrong turn and start doing things we don’t agree with, we withdraw funding.”

The Kochs’ subsidization of a pro-corporate movement fulfills, in many ways, the vision laid out in a secret 1971 memo that Lewis Powell, then a Virginia attorney, wrote two months before he was nominated to the Supreme Court. The antiwar movement had turned its anger on defense contractors, such as Dow Chemical, and Ralph Nader was leading a public-interest crusade against corporations. Powell, writing a report for the U.S. Chamber of Commerce, urged American companies to fight back. The greatest threat to free enterprise, he warned, was not Communism or the New Left but, rather, “respectable elements of society”—intellectuals, journalists, and scientists. To defeat them, he wrote, business leaders needed to wage a long-term, unified campaign to change public opinion.

Charles Koch seems to have approached both business and politics with the deliberation of an engineer. “To bring about social change,” he told Doherty, requires “a strategy” that is “vertically and horizontally integrated,” spanning “from idea creation to policy development to education to grassroots organizations to lobbying to litigation to political action.” The project, he admitted, was extremely ambitious. “We have a radical philosophy,” he said.

In 1977, the Kochs provided the funds to launch the nation’s first libertarian think tank, the Cato Institute. According to the Center for Public Integrity, between 1986 and 1993 the Koch family gave eleven million dollars to the institute. Today, Cato has more than a hundred full-time employees, and its experts and policy papers are widely quoted and respected by the mainstream media. It describes itself as nonpartisan, and its scholars have at times been critical of both parties. But it has consistently pushed for corporate tax cuts, reductions in social services, and laissez-faire environmental policies.

When President Obama, in a 2008 speech, described the science on global warming as “beyond dispute,” the Cato Institute took out a full-page ad in the Times to contradict him. Cato’s resident scholars have relentlessly criticized political attempts to stop global warming as expensive, ineffective, and unnecessary. Ed Crane, the Cato Institute’s founder and president, told me that “global-warming theories give the government more control of the economy.”

Cato scholars have been particularly energetic in promoting the Climategate scandal. Last year, private e-mails of climate scientists at the University of East Anglia, in England, were mysteriously leaked, and their exchanges appeared to suggest a willingness to falsify data in order to buttress the idea that global warming is real. In the two weeks after the e-mails went public, one Cato scholar gave more than twenty media interviews trumpeting the alleged scandal. But five independent inquiries have since exonerated the researchers, and nothing was found in their e-mails or data to discredit the scientific consensus on global warming.

Nevertheless, the controversy succeeded in spreading skepticism about climate change. Even though the National Oceanic and Atmospheric Administration recently issued a report concluding that the evidence for global warming is unequivocal, more Americans are convinced than at any time since 1997 that scientists have exaggerated the seriousness of global warming. The Kochs promote this statistic on their company’s Web site but do not mention the role that their funding has played in fostering such doubt.

In a 2002 memo, the Republican political consultant Frank Luntz wrote that so long as “voters believe there is no consensus about global warming within the scientific community” the status quo would prevail. The key for opponents of environmental reform, he said, was to question the science—a public-relations strategy that the tobacco industry used effectively for years to forestall regulation. The Kochs have funded many sources of environmental skepticism, such as the Heritage Foundation, which has argued that “scientific facts gathered in the past 10 years do not support the notion of catastrophic human-made warming.” The brothers have given money to more obscure groups, too, such as the Independent Women’s Forum, which opposes the presentation of global warming as a scientific fact in American public schools. Until 2008, the group was run by Nancy Pfotenhauer, a former lobbyist for Koch Industries. Mary Beth Jarvis, a vice-president of a Koch subsidiary, is on the group’s board.

Naomi Oreskes, a professor of history and science studies at the University of California, San Diego, is the co-author of “Merchants of Doubt,” a new book that chronicles various attempts by American industry to manipulate public opinion on science. She noted that the Kochs, as the heads of “a company with refineries and pipelines,” have “a lot at stake.” She added, “If the answer is to phase out fossil fuels, a different group of people are going to be making money, so we shouldn’t be surprised that they’re fighting tooth and nail.”

David Koch told New York that he was unconvinced that global warming has been caused by human activity. Even if it has been, he said, the heating of the planet will be beneficial, resulting in longer growing seasons in the Northern Hemisphere. “The Earth will be able to support enormously more people because far greater land area will be available to produce food,” he said.

In the mid-eighties, the Kochs provided millions of dollars to George Mason University, in Arlington, Virginia, to set up another think tank. Now known as the Mercatus Center, it promotes itself as “the world’s premier university source for market-oriented ideas—bridging the gap between academic ideas and real-world problems.” Financial records show that the Koch family foundations have contributed more than thirty million dollars to George Mason, much of which has gone to the Mercatus Center, a nonprofit organization. “It’s ground zero for deregulation policy in Washington,” Rob Stein, the Democratic strategist, said. It is an unusual arrangement. “George Mason is a public university, and receives public funds,” Stein noted. “Virginia is hosting an institution that the Kochs practically control.”

The founder of the Mercatus Center is Richard Fink, formerly an economist. Fink heads Koch Industries’ lobbying operation in Washington. In addition, he is the president of the Charles G. Koch Charitable Foundation, the president of the Claude R. Lambe Charitable Foundation, a director of the Fred C. and Mary R. Koch Foundation, and a director and co-founder, with David Koch, of the Americans for Prosperity Foundation.

Fink, with his many titles, has become the central nervous system of the Kochtopus. He appears to have supplanted Ed Crane, the head of the Cato Institute, as the brothers’ main political lieutenant. Though David remains on the board at Cato, Charles Koch has fallen out with Crane. Associates suggested to me that Crane had been insufficiently respectful of Charles’s management philosophy, which he distilled into a book called “The Science of Success,” and trademarked under the name Market-Based Management, or M.B.M. In the book, Charles recommends instilling a company’s corporate culture with the competitiveness of the marketplace. Koch describes M.B.M. as a “holistic system” containing “five dimensions: vision, virtue and talents, knowledge processes, decision rights and incentives.” A top Cato Institute official told me that Charles “thinks he’s a genius. He’s the emperor, and he’s convinced he’s wearing clothes.” Fink, by contrast, has been far more embracing of Charles’s ideas. (Fink, like the Kochs, declined to be interviewed.)

At a 1995 conference for philanthropists, Fink adopted the language of economics when speaking about the Mercatus Center’s purpose. He said that grant-makers should use think tanks and political-action groups to convert intellectual raw materials into policy “products.”

The Wall Street Journal has called the Mercatus Center “the most important think tank you’ve never heard of,” and noted that fourteen of the twenty-three regulations that President George W. Bush placed on a “hit list” had been suggested first by Mercatus scholars. Fink told the paper that the Kochs have “other means of fighting [their] battles,” and that the Mercatus Center does not actively promote the company’s private interests. But Thomas McGarity, a law professor at the University of Texas, who specializes in environmental issues, told me that “Koch has been constantly in trouble with the E.P.A., and Mercatus has constantly hammered on the agency.” An environmental lawyer who has clashed with the Mercatus Center called it “a means of laundering economic aims.” The lawyer explained the strategy: “You take corporate money and give it to a neutral-sounding think tank,” which “hires people with pedigrees and academic degrees who put out credible-seeming studies. But they all coincide perfectly with the economic interests of their funders.”

In 1997, for instance, the E.P.A. moved to reduce surface ozone, a form of pollution caused, in part, by emissions from oil refineries. Susan Dudley, an economist who became a top official at the Mercatus Center, criticized the proposed rule. The E.P.A., she argued, had not taken into account that smog-free skies would result in more cases of skin cancer. She projected that if pollution were controlled it would cause up to eleven thousand additional cases of skin cancer each year.

In 1999, the District of Columbia Circuit Court took up Dudley’s smog argument. Evaluating the E.P.A. rule, the court found that the E.P.A. had “explicitly disregarded” the “possible health benefits of ozone.” In another part of the opinion, the court ruled, 2-1, that the E.P.A. had overstepped its authority in calibrating standards for ozone emissions. As the Constitutional Accountability Center, a think tank, revealed, the judges in the majority had previously attended legal junkets, on a Montana ranch, that were arranged by the Foundation for Research on Economics and the Environment—a group funded by Koch family foundations. The judges have claimed that the ruling was unaffected by their attendance.

“Ideas don’t happen on their own,” Matt Kibbe, the president of FreedomWorks, a Tea Party advocacy group, told me. “Throughout history, ideas need patrons.” The Koch brothers, after helping to create Cato and Mercatus, concluded that think tanks alone were not enough to effect change. They needed a mechanism to deliver those ideas to the street, and to attract the public’s support. In 1984, David Koch and Richard Fink created yet another organization, and Kibbe joined them. The group, Citizens for a Sound Economy, seemed like a grassroots movement, but according to the Center for Public Integrity it was sponsored principally by the Kochs, who provided $7.9 million between 1986 and 1993. Its mission, Kibbe said, “was to take these heavy ideas and translate them for mass America. . . . We read the same literature Obama did about nonviolent revolutions—Saul Alinsky, Gandhi, Martin Luther King. We studied the idea of the Boston Tea Party as an example of nonviolent social change. We learned we needed boots on the ground to sell ideas, not candidates.” Within a few years, the group had mobilized fifty paid field workers, in twenty-six states, to rally voters behind the Kochs’ agenda. David and Charles, according to one participant, were “very controlling, very top down. You can’t build an organization with them. They run it.”

Around this time, the brothers faced a political crisis. In 1989, the Senate Select Committee on Indian Affairs investigated their business and released a scathing report accusing Koch Oil of “a widespread and sophisticated scheme to steal crude oil from Indians and others through fraudulent mismeasuring.” The Kochs admitted that they had improperly taken thirty-one million dollars’ worth of crude oil, but said that it had been accidental. Charles Koch told committee investigators that oil measurement is “a very uncertain art.”

To defend its reputation, Koch Industries hired Robert Strauss, then a premier Washington lobbyist; the company soon opened an office in the city. A grand jury was convened to investigate the allegations, but it eventually disbanded, without issuing criminal charges. According to the Senate report, after the committee hearings Koch operatives delved into the personal lives of committee staffers, even questioning an ex-wife. Senate investigators were upset by the Kochs’ tactics. Kenneth Ballen, the counsel to the Senate committee, said, “These people have amassed such unaccountable power!”

By 1993, when Bill Clinton became President, Citizens for a Sound Economy had become a prototype for the kind of corporate-backed opposition campaigns that have proliferated during the Obama era. The group waged a successful assault on Clinton’s proposed B.T.U. tax on energy, for instance, running advertisements, staging media events, and targeting opponents. And it mobilized anti-tax rallies outside the Capitol—rallies that NPR described as “designed to strike fear into the hearts of wavering Democrats.” Dan Glickman, a former Democratic congressman from Wichita, who supported the B.T.U. tax, recalled, “I’d been in Congress eighteen years. The Kochs actually engaged against me and funded my opponent. They used a lot of resources and effort—their employees, too.” Glickman suffered a surprise defeat. “I can’t prove it, but I think I was probably their victim,” he said.

The Kochs continued to disperse their money, creating slippery organizations with generic-sounding names, and this made it difficult to ascertain the extent of their influence in Washington. In 1990, Citizens for a Sound Economy created a spinoff group, Citizens for the Environment, which called acid rain and other environmental problems “myths.” When the Pittsburgh Post-Gazette investigated the matter, it discovered that the spinoff group had “no citizen membership of its own.”

In 1997, another Senate investigation began looking into what a minority report called “an audacious plan to pour millions of dollars in contributions into Republican campaigns nationwide without disclosing the amount or source,” in order to evade campaign-finance laws. A shell corporation, Triad Management, had paid more than three million dollars for attack ads in twenty-six House races and three Senate races. More than half of the advertising money came from an obscure nonprofit group, the Economic Education Trust. The Senate committee’s minority report suggested that “the trust was financed in whole or in part by Charles and David Koch of Wichita, Kansas.” The brothers were suspected of having secretly paid for the attack ads, most of which aired in states where Koch Industries did business. In Kansas, where Triad Management was especially active, the funds may have played a decisive role in four of six federal races. The Kochs, when asked by reporters if they had given the money, refused to comment. In 1998, however, the Wall Street Journal confirmed that a consultant on the Kochs’ payroll had been involved in the scheme. Charles Lewis, of the Center for Public Integrity, described the scandal as “historic. Triad was the first time a major corporation used a cutout”—a front operation—“in a threatening way. Koch Industries was the poster child of a company run amok.”

During the Clinton Administration, the energy industry faced increased scrutiny and regulation. In the mid-nineties, the Justice Department filed two lawsuits against Koch Industries, claiming that it was responsible for more than three hundred oil spills, which had released an estimated three million gallons of oil into lakes and rivers. The penalty was potentially as high as two hundred and fourteen million dollars. In a settlement, Koch Industries paid a record thirty-million-dollar civil fine, and agreed to spend five million dollars on environmental projects.

In 1999, a jury found Koch Industries guilty of negligence and malice in the deaths of two Texas teen-agers in an explosion that resulted from a leaky underground butane pipeline. (In 2001, the company paid an undisclosed settlement.) And in the final months of the Clinton Presidency the Justice Department levelled a ninety-seven-count indictment against the company, for covering up the discharge of ninety-one tons of benzene, a carcinogen, from its refinery in Corpus Christi, Texas. The company was liable for three hundred and fifty million dollars in fines, and four Koch employees faced up to thirty-five years in prison. The Koch Petroleum Group eventually pleaded guilty to one criminal charge of covering up environmental violations, including the falsification of documents, and paid a twenty-million-dollar fine. David Uhlmann, a career prosecutor who, at the time, headed the environmental-crimes section at the Justice Department, described the suit as “one of the most significant cases ever brought under the Clean Air Act.” He added, “Environmental crimes are almost always motivated by economics and arrogance, and in the Koch case there was a healthy dose of both.”

Tomorrow - Part Three

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