Koch Industries Responds to Rolling Stone - And We Answer Back

By Tim Dickinson, Rolling Stone

30 September 14

�

"Koch Facts" calls our story "dishonest and misleading." A point-by-point rebuttal.

och Industries has written a lengthy response to our feature story on the company in the latest issue of Rolling Stone. In tweets the company apparently paid to promote, Koch bills this write-up as a "point-by-point response to Rolling Stone writer Tim Dickinson's dishonest and misleading story." The salient feature of Koch's response is that the company does not argue the core facts of our 9,000-word expose. Instead, Koch targets the messenger. Koch's top target here is not even Rolling Stone, but me, Tim Dickinson.

I find it, frankly, amusing that a company that has been convicted of six felonies and numerous misdemeanors; paid out tens of millions of dollars in fines; traded with Iran, and been so reckless in its business practices that two innocent teenagers ended up dead, attempts to impugn my integrity, and on the basis of my association with Mother Jones � where I worked as an editor in the late 1990s and early 2000s, on a team that was twice nominated and once awarded a National Magazine Award for General Excellence.

Koch, in particular, takes umbrage with my reporting practices.

For the record: In the weeks prior to publication, beginning September 4th, Rolling Stone attempted to engage Koch Industries in a robust discussion of the issues raised in our reporting. Rolling Stone requested to interview CEO Charles Koch about his company's philosophy of Market Based Management; Ilia Bouchouev, who heads Koch's derivatives trading operations, about the company's trading practices; and top Koch lawyer Mark Holden about the company's significant legal and regulatory history.

The requests to speak to Charles Koch and Bouchouev were simply ignored. Ultimately, only Holden responded on the record, only via e-mail and only after Holden baselessly insinuated that I had been given an "opposition research" document dump from the liberal activist David Brock. (This is false.) From my perspective as a reporter, Koch Industries is the most hostile and paranoid organization I've ever engaged with � and I've reported on Fox News. In a breach of ethics, Koch has also chosen to publish email correspondence characterizing the content of a telephone conversation that was, by Koch's own insistence, strictly off the record.

In an attempt to negotiate an on-the-record interview, Rolling Stone had sent Holden a series of discussion topics. Holden and the Koch communications team treated these general topics, instead, as though they were specific questions and provided the voluminous responses they have reproduced, inventively, as a Q&A on their website.

These responses were not "ignored," as Koch suggests. In part, they contain useful background information, and they informed my reporting of the story. But in the main, the Koch responses attempt to re-litigate closed cases � incidents where judges, juries, and, in one case, a Senate Select Committee, have already had a final say. They only muddy waters that have been clarified by a considered legal process.

Where Koch attempted to provide additional context, it was frequently hairsplitting and obfuscatory. For example, in the case of the felony conviction at the Corpus Christi refinery, Holden insisted: "the case did not involve any penalty for benzene emissions." However the count that Koch pleaded guilty to April 2001 reads, in part: "defendant KOCH PETROLEUM GROUP, L.P., did knowingly and willfully falsify, conceal and cover up by trick, scheme and device material facts in a matter within the jurisdiction of the Texas Natural Resources Conservation Commission and the United States Environmental Protection agency, to wit... the fact that the defendant had failed to measure the level of benzene entering the aeration basin at the West Plant." [Emphasis added.] Rolling Stone readers are not served by reprinting, in full or in part, what can kindly be called Koch Industries' distortions.

Ironically, it is now Koch that accuses me of having written a "blatantly dishonest and misleading article." But in attempting to make that case, Koch itself continues to distort the record.

The chief "gotcha" point in Koch's write up regards the leak at the refinery it owns in North Pole, Alaska, contributing to the facility's shuttering this year. Koch writes: "He deceptively omits the undisputed facts that the off-site contamination existed long before Koch bought the refinery in 2004, that the contamination was not disclosed to Koch by the prior owner, and that once discovered Koch quickly and voluntarily began providing alternative water to the community."

The clear implication, in Koch's telling, is that the company is not the responsible party for the pollution in North Pole. This precisely contradicts two rulings by a state judge in Alaska, that Koch is solely responsible for the 2.5- by 3-mile plume of the refining solvent sulfolane that has fouled the groundwater for hundreds of residents there.

It is true, as Koch notes, that the refinery's sulfolane leak began under the previous owner. But the sulfolane leak continued under the ownership of Koch's refining subsidiary, Flint Hills, with the company's own documents reportedly estimating that 10,616 gallons of "high sulfolane-laden wastewater" leaked from a faulty sump system at the refinery from 2004, when Koch bought the plant, to 2009.

Koch's attempts to pin the refinery's pollution problem on the previous owner have gone nowhere in court. Contrary to Koch's claim that it took swift action to remediate the problem, the Alaska judge wrote that Koch had been warned of potential groundwater pollution and "failed to heed the advice it was given and failed to conduct a reasonable inquiry into the scope of the sulfolane contamination." The judge ruled that Koch's failure to seek redress from the previous owner within the statute of limitations have made the pollution at North Pole Koch's problem, alone.

Koch also does not mention that it has pressured state regulators to increase the acceptable amount of sulfolane pollution in groundwater � a move that would hugely reduce Koch's cleanup liability.

Koch is correct that there is more to the story at North Pole, but these facts do not weigh in Koch's favor.

Let's now address Koch's bullet-points, in order:

Number One:

• Mr. Dickinson makes a number of broad negative claims about Koch's environmental record, but only passing reference to the more than 900 awards for safety, environmental excellence, and community stewardship Koch has received since 2009 alone - information that we provided to Mr. Dickinson. In an article ostensibly about Koch's relationship with regulators, the fact that EPA has repeatedly praised Koch for a productive and collaborative approach is surely relevant to Rolling Stone readers. In addition, he excised our explanation of the long and continuing path to improve and enhance our environmental, health, and safety performance. He also ignored the discussion about our ongoing efforts to ensure we understand and meet the expectations of the EPA and other regulators, our communities, and our shareholders.

Here Koch appears to be criticizing me for not adequately doing their own PR for them. The story clearly remarks on the culture change, circa 2000, that made environmental compliance a focus at Koch Industries and quotes Holden about the company's quest for "10,000 percent" compliance. Given the company's recent pollution woes it seems that Koch is falling far short of that standard.

Number Two:

• While he never raised the issue with us, Mr. Dickinson refers to a University of Massachusetts-Amherst report from a radical group that names Koch as an alleged major "polluter" in the United States. Here again he omits key context to mislead readers. As we detailed here in a statement readily available to Mr. Dickinson, that report included virtually every major manufacturer in the United States today, which combined form the lifeblood of the economy and provide good-paying manufacturing jobs to millions of Americans. Moreover, the emissions cited in the report are legal and regulated by the Environmental Protection Agency (EPA). EPA itself notes that Toxic Release Inventory (TRI) information alone does not indicate that the use or release of these chemicals poses a risk. EPA has compiled TRI data for facilities with the same U.S.-based parent company. A parent company is defined as the highest-level company, located in the U.S., which owns at least 50 percent of the voting stock of the manufacturer. These parent companies are ranked by EPA based upon the total volume of production-related waste managed by those facilities. Koch Industries, Inc. is the parent company for the Koch companies. Due to the size and nature of our U.S.-based manufacturing presence, Koch has been among the top 10 parent companies for the last three years. More than 100 Koch company sites submit TRI reports�significantly more than the other top-10 parent companies, which have between 1 and 65 sites reporting.

Koch here characterizes The Political Economy Research Institute at the University of Massachusetts, Amherst as "a radical group." The only radical thing that PERI does is compile facility-by-facility pollution data published by the Environmental Protection Agency and add it up. Based on a simple ranking of this federal data, Koch is, factually, one of America's top air, water, and climate polluters.

Number Three:

• The article states that Koch made the difficult decision to convert a Flint Hills Resources refinery in North Pole, Alaska to a terminal, after "the discovery that a toxic solvent had leaked from the facility, fouling the town's groundwater." Mr. Dickinson ignored all the information we provide him on this topic. He deceptively omits the undisputed facts that the off-site contamination existed long before Koch bought the refinery in 2004, that the contamination was not disclosed to Koch by the prior owner, and that once discovered, Koch quickly and voluntarily began providing alternative water to the community. He also ignores that Alaskan public officials like Senator Mark Begich and Governor Sean Parnell empathized with Flint Hills' difficult decision and that Flint Hills has worked to retain as many of the affected employees as possible at other Koch companies.

This is the North Pole discussion, see above.

Number Four:

• The article falsely claims that Koch's petroleum coke business at its KCBX North facility in Chicago is endangering the "health of South Side residents," despite the fact that we provided Mr. Dickinson the Congressional Research Service research, findings from the city of Chicago that "there are no known illnesses or health effects associated with pet coke dust," and EPA's own conclusion that "petroleum coke itself has a low level of toxicity and that there is no evidence of carcinogenicity." Nor does Mr. Dickinson note that KCBX was honored with the Good Neighbor award from the Southeast Environmental Task Force in 2001 and again in 2005.

Here Koch disputes that petcoke poses a health risk. The characterization of harmful health effects in the piece comes directly from the Notice of Violation EPA sent Koch in June, citing micro-particulate air pollution emanating from Koch's Chicago terminals � which sit near a little league baseball field and urban homes. It reads, in part, "Environmental Impact of Violations� � irritation of the airways, coughing, and difficulty breathing; � decreased lung function; � aggravated asthma; � chronic bronchitis; � irregular heartbeat; � nonfatal heart attacks; and � premature death in people with heart or lung disease."

Number Five:

• Mr. Dickinson rehashes regulatory and legal issues from the 1970s and 1980s regarding Nixon Administration price controls and oil lotteries that have long since been settled. In some instances, Mr. Dickinson fails to note the responses we provided him.

Koch disputes nothing here. Their unpublished responses were not quote worthy.

Number Six:

• The article falsely declares that Koch "stole" oil from American Indian lands in the 1970s and 1980s. In fact, no oil was "stolen" and there was no finding of theft of any kind in this case. We detailed this to Mr. Dickinson before publication and provided him with a statement and substantiation explaining the issue. He ignores all of it.

This regards Koch's purchases of Native oil. Koch mischaracterizes and misquotes the piece here. In describing accusations of theft, the piece quotes directly either from the government record � including conclusions of a Senate Select Committee investigation � or sworn court testimony of a former Koch employee. The piece goes on to detail that Koch was never prosecuted criminally, but that a related civil case produced a large judgement against the company. This description is consistent with the factual record and with Koch's prepublication remarks to Rolling Stone on the matter.

Number Seven:

• In discussing Koch facilities in Minnesota, Mr. Dickinson accuses us of "treating the Mississippi [River] as a sewer" during the 1990s. This is inaccurate and one-sided. In fact, between 1998 and 2001, Koch Petroleum Group entered into a series of agreements with the Minnesota Pollution Control Agency and EPA to resolve issues at Koch's Rosemount, Minnesota refinery, taking full responsibility for past discharges from an aviation fuel tank leak, part of which reached a wetland adjacent to the Mississippi River, though not the river itself. We pointed Mr. Dickinson to the fact that our Minnesota refinery is recognized for its exemplary environmental performance, and its cooperative and productive relationships with regulators, environmental groups, and neighbors. His story omits these facts.

Here Koch is discussing its pollution record in Minnesota, although it seems fuzzy on the facts. The description of Koch using the Mississippi as a sewer comes not from the spill of aviation fuel in marshlands near the river, but from unmonitored wastewater dumps into the river. As recalled by the EPA: "In a separate offense, Koch dumped a million gallons of wastewater with high ammonia content on the ground between November 1996 and March 1997 and also increased its flow of wastewater into the Mississippi River on weekends when Koch did not monitor its discharges."

Number Eight:

• Mr. Dickinson says Koch was convicted of a "felony count for covering up the fact that it had disconnected a key pollution-control device" at a Corpus Christi facility. In fact, in 1995 an individual Koch employee filed a false report in this case, was terminated for doing so, and Koch voluntarily disclosed the incident to the Texas environmental regulatory agency. We provided Mr. Dickinson with this information in detail, including information demonstrating that someone altered evidence during the grand jury process. The official Texas state government meeting record showed when Koch first learned of the issues in 1995, our employees openly and directly told the state regulator that the refinery was out of compliance and advised they would come back to the regulator when they better understood all the details. In fact, later government records show that our employees did just as they promised. The meeting record that was used by the federal grand jury had that key exculpatory information excised. Ultimately, the 97-count indictment Mr. Dickinson mentions was dismissed after the government's case cratered when Koch finally had a chance to challenge the evidence in front of the trial judge. As part of a settlement, Koch pled guilty to the incident stemming from the event we voluntarily disclosed back in 1995. The government required the four individuals who were wrongly accused to waive their rights to sue for malicious prosecution as part of this settlement. We gave Mr. Dickinson all this information and provided him copies of the documents, which are in our responses above. He intentionally ignores all of this to repeat the same dishonest and misleading story that many others have written about over the past 13 years.

This bullet point disputes our accurate characterization of what began, in the Clinton administration, as a 97-count criminal indictment over pollution controls at the Corpus Christi refinery, and concluded, in the W. Bush years, with a single felony conviction, as discussed in detail earlier. There is nothing dishonest or misleading about our reporting here.

Number Nine:

• The article shamefully uses the circumstances of a tragic 1997 fatal accident�the only such accident of its kind in the history of Koch Pipeline Company�in a cowardly effort to smear Koch as more concerned with a "10 percent" increase in profit than with human lives. [Ed Note: The accident occurred in 1996.] As with so many other issues, Mr. Dickinson omits our point of view, even though we have publicly addressed the accident on multiple occasions since it happened�the only such accident of its kind in the history of Koch Pipeline Company) and have always accepted responsibility for this tragedy.

Koch here complains that Rolling Stone omitted their response to the Danielle Smalley case. But Koch provided Rolling Stone with no comment on Smalley's death. It was listed along with the other topics the company treated as questions and responded to vigorously. If there was any error of omission, here, it was Koch's.

Number 10:

• Mr. Dickinson quotes former EPA administrator Carol Browner negatively on Koch, and seems to suggest that Koch's 2000 Clean Air agreement with the EPA is evidence of misdeeds. In fact, Ms. Browner described that very agreement as "innovative and comprehensive" and praised the "unprecedented cooperation" of Koch in stepping forward ahead of its industry peers. The agency also deemed the agreement as a "major step in fulfilling the promise of the Clean Air Act."

Koch misleadingly conflates two incidents here. The negative Carol Browner quote � "They simply did not believe the law applied to them." � stems from the case involving Koch's extensive pipeline spills. It is accurate. The story clearly places the 2000 Clean Air agreement with the EPA in the context of Charles Koch's come-to-Jesus moment on compliance. The evidence of past misdeeds, however, is clear in EPA's concurrent imposition of a $4.5 million fine with this settlement.

Number 11:

• Mr. Dickinson never raised with us many of the issues in Koch's financial and trading operations that he later addresses in the article, and on other issues he again fails to note the responses we provided. In discussing a legal settlement with Commodity Futures Trading Commission (CFTC) over energy trading, for instance, Mr. Dickinson fails to note that CFTC praised Koch for full cooperation with its investigation (and also omits that it was a 50-50 joint venture between Entergy and Koch Trading). This was an industry-wide effort by CFTC, Mr. Dickinson fails to mention, and not focused solely on Entergy-Koch Trading (EKT). And in a lengthy discussion of futures trading issues, Mr. Dickinson appears to rely heavily on an article published by left-wing activists in the spring of 2011, despite the fact that the article and its author, Lee Fang, were thoroughly and utterly debunked at the time by multiple independent sources.

Here Koch complains that I did not raise questions about their financial and trading operations. This is not true. I requested multiple times to speak with the head of Koch's derivatives trading operations. Those requests were ignored. Specific questions about Koch's trading practices and profit and loss were stonewalled. For example:

Q: Can you provide a rough breakdown of Koch profits last year from trading, refining, and other operations?

RESPONSE: We are privately held and don't disclose this information.

Q: How much exposure did subsidiary Koch Financial have to credit default swaps at the time of Lehman Brothers bankruptcy?

RESPONSE: We don't disclose this type of information.

To other Koch points here: I clearly acknowledge Koch's partnership with Entergy, so I do not understand their objection here. The fact that other industry players were also punished for wrongdoing at the same is not mitigating. "Everyone else was doing it" is a child's defense.

Koch also evidently has deep issues with Lee Fang, a fine reporter in my estimation, that it should work out with him.

Number 12:

• Despite providing Mr. Dickinson with links to the many mainstream media pieces that mocked, discredited, and criticized a Bloomberg Markets article on a Koch foreign subsidiary's lawful business in Iran, he fails to include any of that information. Koch directly addressed the rank falsehoods emerging from the story multiple times, a repetition made necessary by political partisans and agenda-driven activists who spread known falsehoods in much the same way Mr. Dickinson does here. If he would have bothered to include our statement or link to our responses or other media coverage, he would have seen key information that impeaches the credibility of Bloomberg Market's key source for his story � a former European employee who praised the company previously and never raised any issue about trade with Iran before he left. In any event, the fact that last decade a European subsidiary did some limited business in Iran is irrelevant since, as we have explained multiple times, that was permissible under the law at that time. We ultimately made a voluntary decision not to do business in Iran even when U.S. law allowed it. If Mr. Dickinson had any desire to be open and honest with his readers, he might have noted that many companies continued to do business in Iran long after Koch ceased doing so voluntarily, and that some still do business there.

This details Koch's foreign subsidiary trading with Iran. If you read closely, Koch does not dispute any of the facts as we reported them. We noted that the trade was not illegal, and included Koch's declaration that it has ceased such trade. Koch refused to answer follow up questions about its trade with a member of the "Axis of Evil," including: "Why did any subsidiary business of Koch � regardless of the legality � engage in trade with Iran?"

Number 13:

• Mr. Dickinson's discussion of the Keystone XL pipeline is inaccurate and contradictory. He implies that Koch stands to gain from approval of the pipeline�a claim refuted here and more than a dozen times since such as here, here, here, and here. Yet in the next breath Mr. Dickinson admits that the approval of Keystone XL would actually "eat into [Koch] profit margins." He then offers a third distinct claim, that uncertainty over whether Keystone XL will be approved benefits Koch.

Regarding Keystone XL, we quoted a noted economics professor in Alberta who observed that Koch has conflicting financial interests when it comes to the completion of the pipeline � interests that, on balance, might be best served by a continuation of the status quo. Koch calls this inaccurate, but does not explain why. It refused to answer questions about its oil sands lease-holdings in Canada.: "RESPONSE: We don't disclose our business plans or strategies."

Number 14:

• Other bizarre internal contradictions emerge throughout the article. For instance, Mr. Dickinson first implies Koch was guilty of patent infringement nearly a century ago, then pages later notes that the patent decision against Koch was thrown out when it was discovered the other party had illegally bribed the judge in the case, and that Koch in fact won at the Supreme Court and successfully countersued for anti-trust violations. Elsewhere in the article, Fred Koch is criticized for being both too soft on Stalinism and too "rabidly anti-Communist."

Here Koch takes issue with our characterizations of company founder Fred Koch. The story takes pains to describe the decades-long progression of Fred Koch's legal saga, including the court reversals and bribery scandal Koch refers to. Separately, the fact that Fred Koch made millions enabling the industrialization of the bloody regime of Stalin and later then became a rabid anti-communist does have a contradictory element to it, but that speaks to a complexity within Fred Koch, not a flaw of our reporting.