D(OIL)E:
What Wouldn't Bob Do For Koch Oil?
An Investigative Report

by Robert Parry

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Christopher Tucker didn't know what hit him. In spring 1989, the Texas small-business man was one of dozens of witnesses who testified before Senate investigators in support of allegations that Koch Oil, a Kansas-based company, had stolen more than $31 million in oil from Native Americans and other producers. In the following months, stories began appearing in Oklahoma newspapers depicting Tucker as a perjurer. His landlady's daughter told him she spotted two men in business suits carting away his trash, apparently to search for derogatory information. Tucker also received an odd phone call from the Senate Indian Affairs investigating committee informing him that four influential senators had sent the panel a letter denouncing his credibility. The two-page correspondence, dated November 2, 1989, was signed by Bob Dole and Nancy Kassebaum of Kansas and Don Nickles and David Boren of Oklahoma.

"We have received information that...calls into question the accuracy of Mr. Tucker's sworn testimony before the Special Committee regarding his qualifications," the senators wrote. They noted that Tucker had testified on May 9, 1989, that his company, Tucker Inspections, "is a U.S. Customs approved public gauger," authorized to measure oil in international commerce. Yet the senators remonstrated that they had made inquiries and were informed that "as of May 9, 1989, the U.S. Customs Service had not approved Tucker Inspections, Incorporated, as a commercial gauger." Dole and the others expressed alarm at this discrepancy and even suggested criminal sanctions. "This is a serious matter. It is clear that Mr. Tucker's professional qualifications were not accurately presented to the Special Committee, and this obviously taints his testimony. We trust you will take appropriate action regarding Mr. Tucker."

What the letter didn't mention was that prior to Tucker's testimony, Tucker Inspections had indeed gone through the procedures to gain Customs approval; all that was missing was a bond, a routine requirement. Even that technicality had been fulfilled by the time the four senators fired off their letter. Rather than being a "serious matter," the complaint against Tucker appeared trivial, the sort of nitpicking against a citizen that lacked any proportionality, given the power of the senators. "They attacked him in an effort to discredit the investigation," said former Senator Dennis DeConcini, who co-chaired the Indian oil investigation with Senator John McCain. "But his testimony was credible."

Tucker's testimony -- that he had discovered false measurements by some Koch Oil employees -- was barely a footnote to the investigation. More central to it were Koch's internal records, which showed that in one three-year period, Koch netted at least $31 million in oil not paid for, the Senate's final report stated. In addition, an F.B.I. agent testified that he and other committee investigators witnessed Koch employees steal oil at six different sites. Yet according to committee sources, Dole's office followed up the letter by summoning senior committee investigators and again demanding stern action against Tucker. The investigators countered by offering Dole and his aides a chance to review the evidence against Koch Oil. But neither Dole nor his staff would agree to look at the evidence, said the committee sources, who insisted on anonymity. James Wholey, Dole's administrative assistant in 1989, has not returned phone calls seeking comment.

The question raised by the letter and the pressuring of the Senate committee staff is, of course, What drove Bob Dole and three other busy senators to mount a determined defense of Koch Oil and gang up on Christopher Tucker? "Not to offend [the senators], but when you have a constituent you want to help, you have to say something other than 'He gave to my campaign,'" DeConcini told The Nation. "You have to have some hook, some excuse to write a letter. That's the way it works."

Yet an examination by The Nation of the links between Dole and the owners of Koch Oil shows not only political interference in the Senate's Indian oil investigation but potential new conflicts of interest for a Dole presidency over ongoing criminal and civil cases against Koch in Texas (where a federal grand jury has been convened to hear evidence of an alleged pattern of corporate crime) and Oklahoma. The Koch Oil affair illustrates, too, how Dole has parlayed his political clout into lucrative relationships with some of the country's richest businessmen.

Indeed, given the unusual intervention against the Indian oil probe by Dole, Kassebaum, Nickles and Boren, they could be dubbed the Koch Oil Four, much as five senators who went to bat for corrupt savings-and-loan executive Charles Keating in the mid-1980s became known as the Keating Five. At the heart of both interventions were a regulated business and political money. Koch Oil's parent, Koch Industries, is the nation's largest privately held energy company, with annual revenues of more than $25 billion. The company is owned by two of the richest men in America, David and Charles Koch (pronounced "coke"), who have a combined personal fortune estimated at more than $3 billion and who have emerged as major Republican contributors in recent years. They also control three family foundations -- the Charles G. Koch Foundation, the David H. Koch Foundation and the Claude R. Lambe Foundation -- that have lavished tens of millions of dollars in the past decade on "free market" advocacy institutions in and around Washington.

As a Senate leader, Dole appeared willing to trade his influence for the keys to the Koch political money vault. David Koch is now a national vice chairman of the Dole presidential campaign's finance committee, a position that involves lining up deep-pocket contributors for his candidate and the G.O.P. (Koch, who says he is "thrilled" with Dole's leadership, has also helped Dole achieve majority leader status through his checkbook, contributed mightily to a Dole foundation and even turned his Gatsbyish estate in Southampton, New York, into the site for celebrating Dole's 72nd birthday in July 1995, raising $150,000 for his campaign.)

The Koch Oil Four case is in many respects more serious than that of the Keating Five, because Dole and the others interfered despite evidence of potential criminal activity uncovered by fellow senators. (Ironically, DeConcini and McCain were two of the Keating Five.) Another difference is that the Kochs piled a far taller mountain of political chips on the table than Keating anted up. While Keating and his associates donated some $1.3 million to the campaigns of the Keating Five, the Kochs have given more than $40 million to the Republican Party, the four senators and a host of "free-market" causes in the past dozen years, according to government data.

Oil Money: The Beginnings

The political philosophy of the Koch brothers and their tight relationship with Dole did not spring into being fully formed. William Koch, a brother who broke with David and Charles in a bitter dispute over control of the family business, says Dole was not always a Koch favorite, even though he was the home-state senator for Wichita-based Koch Industries. "In the late seventies or early eighties, I recall Charles saying that Bob Dole was just another Establishment pragmatic politician with no moral principles," said William.

The Koch family odyssey -- its fortune and its new-found power in Republican politics -- can be traced back to a hardscrabble life in West Texas during the early oil-boom years. Fred Koch, the family patriarch, was the son of a frontier newspaperman and, in the 1920s, studied engineering at the Massachusetts Institute of Technology. After M.I.T., he developed a new process for refining crude oil, an invention he took to the Soviet Union. But after some of his business associates were killed in Stalin's purges, Koch returned home a fervent anticommunist. In the 1940s, he and two partners built up a modestly successful oil company, Rock Island Oil and Refining. In 1958, Koch became a charter member of the ultraright John Birch Society.

When Fred Koch died in 1967, the family business fell under the control of his second son, Charles, a strapping young man who changed the company name to Koch Industries. The company grew as it diversified into pipelines, refineries, petrochemicals, financial services, ranching and grain elevators.

But there was tension among Fred Koch's four sons. A feud broke out for control of the company. Charles and David were on one side and David's fraternal twin, William, and the oldest son, Frederick, were on the other. In 1983, Charles and David prevailed, buying out William and Frederick for $470 million and $320 million, respectively.

Besides joining forces to win the family power struggle, Charles and David Koch shared a zealous belief in the free market as the arbiter of nearly every social and economic problem. With their laissez-faire philosophy and their staggering wealth, Charles and David sometimes appeared to be throwbacks to the last century's robber barons.

David Koch, tall and ruggedly handsome, owns a mansion in Aspen, Colorado, which boasts a $300,000 wine cellar and a collection of 5,000 bottles of early vintage Bordeaux and Burgundies. Every New Year's Eve, David hosts Aspen's biggest party; replete with ice sculptures of Michelangelo's David and a downhill skier one recent year, and featuring the finest champagnes and delicacies, the event attracts some 1,000 guests including Hollywood and New York celebrities from Diana Ross to Ivana Trump.

Amid the splendor of their private lives, Charles and David Koch continued the family animus toward any government program that, in their view, smacked of socialism. But they were not Bob Dole enthusiasts. Charles and David were libertarians, blaming both Democrats and Republicans for interfering in the economy. In 1977, Charles Koch co-founded the Cato Institute, an antigovernment libertarian think tank in Washington. Since then, the Kochs have handed out more than $21 million to Cato, as it churns out position papers denouncing welfare programs and lauding self-reliant individualism. In 1980, David Koch was even the Libertarian Party's vice presidential candidate and contributed $1.6 million of his own money to the campaign. By the mid-1980s, their money was founding a potent advocacy group called Citizens for a Sound Economy. A base for free-market economic theory, C.S.E. was started by Richard Fink, a George Mason University professor who is now a vice president at Koch Industries.

But Libertarian Party politics ultimately disillusioned the Kochs, who had real-life business interests that needed a helping hand in Washington. In 1986, for example, Koch Industries encountered just the sort of regulation that its owners had long protested: The federal government sued it for violating the Clean Air Act by modifying a natural gas processing plant in Colorado to "increase potential emissions of oxides of nitrogen by more than 40 tons a year." That same year, the Kochs' disdain for Dole began to dissipate when Koch Industries sought financial advantage under "technical corrections" to a tax revision act. The Washington Post reported that Koch Industries approached Dole and secured the Senator's aid in inserting an exemption from a new real-estate depreciation schedule, a change that was worth several million dollars to the company.

After Dole helped Koch Industries obtain the real-estate exemption, the Kochs made their first personal contribution to a Dole campaign, according to Federal Election Commission data. In June 1987, David Koch chipped in $1,000 to Dole's presidential bid. The Kochs were learning the value of having friends in Washington.

Playing Hardball

Also in 1987, the Kochs' Indian oil problems started when The Arizona Republic wrote a series of articles about lax government monitoring of oil and mineral thefts from Indian lands. DeConcini read the articles and launched a special investigation for the Senate Select Committee on Indian Affairs.

At the same time, William Koch, the disaffected brother, was compiling evidence that Koch oilfield personnel were systematically cheating oil producers on federal and Indian lands. At the center of those alleged thefts, his lawyers said, was a process called the "Koch method," which mismeasured the oil taken from tanks by cutting the top measure of a gauge, boosting the bottom measure, over-reporting the temperature and claiming more sediment than was really present. This willful misreporting saved Koch Oil millions, the lawyers alleged.

In 1988, the Senate investigation sought to determine how widespread such practices were on Indian lands. "We blitzed the oil companies that did work on the reservations," said F.B.I. Special Agent Jim Elroy, a public corruption specialist tasked to the Senate committee from the F.B.I.'s Oklahoma City office. "They all turned over whatever we asked for, except for Koch. They [the Kochs] caused their own problems."

Besides demanding corporate records, the committee got its own evidence of theft. Hiding in ditches and behind shrubs, Elroy and his investigators staked out Koch gaugers and reported catching them in the act of mismeasuring oil from tanks at six different sites.

Elroy said Koch security struck back. In October 1988, when Elroy traveled to Oklahoma City, he said Koch security personnel placed him under surveillance, something the F.B.I. agent had not encountered even when dealing with the Mafia. He recalls confronting a man who had been tailing him: "I pull the guy out of the car at gunpoint. I show my identification. He says, 'I'm a private investigator who works for Koch Industries.' I tell him, 'We [the F.B.I.] work with some very dangerous people. You might take a message back to your employer: Your next person might come back in a body bag.'" Donald Cordes, Koch's vice president for legal affairs, denied that Koch security ever tailed the F.B.I. agent.

But Koch's problems were just beginning. When the Senate committee subpoenaed Koch's internal records, Charles Koch acknowledged in a sworn deposition that the records did show that Koch Oil took more than $31 million in oil without paying. But he argued that oil measurement is a "very uncertain art" and that Koch gaugers "aren't rocket scientists." Yet the committee pointed out that none of the other oil companies, whose records it also subpoenaed, revealed a similar pattern of mismeasurement.

The May 1989 Senate hearings were a P.R. disaster for Koch, as the theft allegations received big play in the Oklahoma news media. Another Koch vice president, Richard Fink, told The Nation that Koch Industries suddenly realized it lacked "corporate defense capabilities." But Koch was learning fast how to play the Washington power game. The company hired super-lawyer Robert Strauss, a former chairman of the Democratic National Committee, to bring bipartisan pressure down on the committee investigation. Koch issued a forty-three-page paper blasting the hearings as "one-sided, unfair and replete with errors of both misstatement and omission." The company accused the disgruntled brother, William, of pursuing a personal vendetta.

In the heat of this battle, Koch approached the four senators -- Dole, Kassebaum, Nickles and Boren. "Koch came to us expressing concerns that they were not being given a chance to refute questions of fact," said Kassebaum spokesman Mike Horak. To get Dole to listen to them, "we had to hire Bob Strauss," recalled Cordes. In mid-1989, Strauss, a close Dole friend, arranged a breakfast between Dole and Cordes at the Watergate, where Dole lives. After the breakfast and hearing Koch's complaints, Dole rallied to the company's defense. The overtures to the senators led to the letter attacking Christopher Tucker, who had worked as a consultant on William Koch's lawsuit. "That's the one rifle shot we took," said Cordes, explaining the company's strategy of targeting Tucker as a perceived weak link in the investigation. Tucker told The Nation that in Texas, surveillance of his movements forced him to change his life. He exercised greater care in making friends, secured all sensitive documents and even shredded papers headed for the trash. "It's very intimidating," he said. "You have a company with lots of money. They've got more money than many small countries do."

The flood of Koch money to the G.O.P. also began in earnest then. According to F.E.C. records, David Koch wrote a $10,000 check in October 1989 to the National Republican Senatorial Committee, the Kochs' first large donation to the G.O.P.

Despite the company's counterattacks, DeConcini and McCain stuck to their guns. "Koch Oil, a subsidiary of Koch Industries and the largest purchaser of Indian oil in the country, is the most dramatic example of an oil company stealing by deliberate mismeasurement and fraudulent reporting," the committee concluded. The panel shipped its evidence to the U.S. Attorney's office in Oklahoma City, where a criminal investigation had begun.

Koch in a Corner

Back at Koch Industries, Charles Koch ordered his corporate executives to get to work burnishing "Koch's image," according to internal company records obtained by The Nation. As part of that strategy, the company increased donations to politically influential organizations and individuals in Oklahoma, Kansas and other key states. In Oklahoma, Koch officials targeted "key business leaders," including major donors to Senator Nickles and the Republican Party. Koch executives were matched up with specific Oklahomans and told to "stay close" to them.

With its corporate back to the wall, Koch Industries redoubled its efforts to discredit the Senate's conclusion. The company got a break when Jack Graves of Calumet Oil of Tulsa, one of the major Osage Indian oil managing companies, contacted a Koch executive about giving to some of his favorite civic organizations, according to an internal Koch e-mail written by a Koch official, "P. [Paul] Dominic," on October 24, 1989. Graves was already on Koch's list of Oklahoma business leaders deserving personalized attention as a "heavy political giver." So Koch Industries was receptive, especially since he mentioned that he would write "a letter 'giving us his blessings and that everything is A-OK,'" the e-mail said.

Seventeen days later, Graves reported to the Osage Indians that "everyone appears to be operating within accepted industry guidelines and principles." Koch, like the other major oil companies, was "concerned about the Osages, the oil operators and the environment," Graves wrote.

Koch Industries found an ally, too, in the Bureau of Land Management, which the Senate investigation had castigated for failing to "prevent the theft of crude oil and natural gas from Indian land." Bush Administration officials at the B.L.M. countered that their review of the Koch Oil leases found "only eight minor...discrepancies." The B.L.M. conceded, however, that it didn't begin checking until January 1989, when "Koch was aware that it was under close scrutiny from the committee."

Based on these assurances, the Osage Tribe Council issued a statement that "we are going to continue to do business with Koch Oil." Cordes declared that the Osage report "completely undermines the false allegations of the Senate subcommittee."

On March 26, 1990, armed with the pro-Koch reports from the B.L.M. and the Osage Indians, Dole took to the Senate floor to resume his attack on the Indian oil investigation. Waving newspaper clippings about the two reports, Dole hailed Koch Industries as "a solid corporate citizen" and added that "several senators, including myself, Senator Kassebaum, Senator Boren and Senator Nickles, had very real concerns about some of the evidence on which the special committee was basing its findings, concerns we raised with the committee in successive letters before the report was issued. It now looks like those concerns were well founded." (Again, according to committee sources, neither Dole nor his staff had ever taken the panel up on its offer to let them examine the evidence.)

Over the next six years, the Kochs showered the G.O.P. with more than $340,000 in campaign contributions from the Koch Industries PAC and from their individual donations. KochPAC gave $18,000 to Dole and $5,000 to Nickles. On a personal level, Charles Koch sent $1,000 to the Kassebaum re-election campaign in 1990 and contributed $2,000 to Dole. In 1991 David Koch contributed $1,000 to Nickles and the maximum $2,000 to Dole's primary and general election campaigns. Koch employees kicked in $23,950 for Dole. Koch-supported think tanks also coordinated more closely with Republicans.

In 1993 Charles Koch donated $1,000 to Boren, the sole Democrat in the Koch Oil Four. Then, after Boren retired in 1994 to become president of the University of Oklahoma, the Kochs' largesse followed him. According to an internal Koch memo, the Oklahoma Foundation for Excellence had been identified as "David Boren's puppy." So Koch Industries gave the group $50,000 in September 1994. In June 1995, Koch Industries boosted Boren in his new job as O.U. president by contributing $150,000 to O.U.'s College of Medicine and Children's Hospital.

As for Dole, in the years following his help in the Indian oil case, Charles and David Koch have raised hefty sums for him and for other Republican Senate candidates to aid him. In October 1994, for instance, with Dole trying to nail down a G.O.P. Senate majority, the Kochs organized a "joint fund-raising representative," called Citizens for Economic Growth, to solicit Koch business associates and collect $205,700 for Republicans in four pivotal Senate races: Rod Grams of Minnesota, Jim Inhofe of Oklahoma, Craig Thomas of Wyoming and Jan Stoney of Nebraska.

On October 29, 1994, Bob Dole attended the gala candidates' dinner at Charles Koch's home in Wichita. "The event not only offers another example of how Dole and his connections are filling the coffers of G.O.P. Senate hopefuls this fall, but it also shows the sorts of tactics being used to garner cash from special interests in the closing weeks of the campaign," the Minneapolis Star Tribune reported. Of the four Republicans, all but Stoney won, victories that helped give the G.O.P. narrow control of the Senate and made Dole the new majority leader.

That same year, when Dole's Better America Foundation was soliciting money, Charles Koch was there again with his checkbook. The chairman of Koch Industries gave $225,000, the second-largest contribution. But after the special-interest fundraising drew public criticism in 1995, Dole closed down the foundation and returned some of the money.

The Criminal Cases

Yet despite the four senators' intervention, the Indian oil case refused to die a quiet death. Into the early 1990s, Koch was still facing the federal criminal investigation in Oklahoma City, which could have led to indictment of the corporation and possibly of senior executives. Nancy Jones, the assistant U.S. Attorney in charge, had found "probable cause to believe that Koch Oil...was engaged in corporate directed theft from Government lands and non-government lands, involving interstate pipelines, and from Indian country," according to a July 26, 1989, F.B.I. summary of the case.

But the U.S. Attorney's office was experiencing a change at the top. U.S. Attorney Bill Price left to run for governor and was replaced by Tim Leonard, a former Republican state senator and a close political ally of Senator Nickles. Leonard also owned a half-dozen oil and natural gas wells in Beaver County, Oklahoma, which had sold at least small amounts of oil to Koch Oil and raised a conflict-of-interest question.

Before his appointment as U.S. Attorney, Leonard pledged in writing "to (1) disqualify myself on any matter in which it appears desirable for me not to participate personally or substantially in order to avoid a possible appearance of impropriety (even if there is a lack of an actual conflict of interest)." But once in office, Leonard obtained a waiver from then­Deputy Attorney General William Barr to participate directly in the Koch Oil matter.

From the start of that investigation, assistant U.S. Attorney Jones expressed concern that "present [Koch] employee[s] had relevant information that they would provide but for their concerns about retaliations by superiors," the F.B.I. reported on December 19, 1991. A former federal prosecutor told The Nation that some witnesses, apparently fearing reprisals, had "turned tail," making it "hard to get further up the ladder" of the company's hierarchy.

Then, with the case before a special grand jury, Jones resigned, discouraged because she felt that Leonard was "too political," said the same former prosecutor, who requested anonymity. Jones's successors soon concluded that there was insufficient evidence to proceed against Koch Industries. Leonard administered the coup de grâce by issuing a rare "declination" letter that announced to Koch's lawyers that the investigation "has been terminated. No indictments are anticipated." Jones did not return repeated phone calls seeking her comment.

A few months after the declination letter, Senator Nickles sponsored Leonard's appointment as a U.S. District Court judge in Oklahoma City. At Leonard's Senate confirmation hearings, Nickles called Leonard "a very good friend," and Leonard noted that his son was working as an intern in Nickles's office. Leonard won easy confirmation.

In an interview with The Nation, Judge Leonard said "there was no pressure, no contact from any official, elected or otherwise, from anyone regarding the Koch Oil investigation." Arlene Joplin, who ran Leonard's criminal division, agreed. "The thought there was some kind of political maneuvering by Dole or Judge Leonard is just plain nuts," she said. DeConcini, however, was amazed at Leonard's decision to decline prosecution. "I was a prosecutor before I was a senator," DeConcini declared, noting the breadth of evidence from both eyewitness accounts and internal corporate records. "It was one helluva case."

On August 13, 1992, Dole, Nickles, Kassebaum and Boren penned yet another pro-Koch letter to the Senate Indian Affairs Committee. The four senators recommended the highly unusual step of attaching an addendum to the panel's three-year-old report to incorporate "the independent findings" that cleared Koch Industries. The committee refused, but Koch appeared to be off the government's hook.

There was, however, one last stumbling block. In Tulsa, William Koch had filed a "false claims" lawsuit that paralleled the Senate oil-theft charges. His suit was filed under a whistleblower law that permits citizens aiding recovery of money or property stolen from the U.S. government to keep part as a reward. As more witnesses were deposed, his lawyers passed the information to the Osage Indians. On November 29, 1994, after reviewing the new evidence, Osage principal chief Charles Tillman Jr. repudiated the earlier Osage report that Dole had cited in exonerating Koch Industries.

In a letter to McCain, Tillman cited "statements of dozens of former Koch employees who describe in vivid detail the fraudulent practice they engaged in, allegedly with full knowledge of and encouragement by Koch officials." Tillman attributed the previous Osage statement to bad information from Washington. "We are left with the inescapable conclusion that the Bureau of Indian Affairs was more concerned with putting a lid on your Committee's findings than in providing us with the truth," the chief wrote.

So far, a court gag order has stopped disclosure of pretrial discoveries in the Tulsa case. But a ruling this past January made clear that more onetime Koch employees have alleged illegal acts by the company. In that ruling, U.S. Magistrate Judge Sam Joyner cited sworn depositions by three former Koch employees who described use of the so-called Koch method for systematically mismeasuring oil, burying sludge from tank bottoms and other offenses.

"Defendants [Koch Industries] argue that testimony regarding the alleged Koch method, destruction of documents, burying of tank bottoms and falsification of truck logs is information which relates to their 'business methods,'" deserving protection as proprietary corporate data, Joyner stated. "The Court does not agree."

But the whistleblower law under which the Tulsa case was brought lets the Justice Department intervene at any time to settle a false-claims suit as the government sees fit. If Dole becomes President, his Justice Department would have the power to settle the Tulsa case on terms favorable to Koch Industries.

Even this potential conflict of interest is not the only one pairing Dole and Koch Industries. The company is facing new allegations of wrongdoing, this time stemming from about 300 oil spills, mostly in Texas and Oklahoma. Already, in Houston, the Justice Department is suing Koch Industries for an estimated $54 million as a result. A Dole Justice Department could take a less aggressive approach to the oil-spill case than the Clinton Administration has. And Justice is examining a broader pattern of possible corporate crimes by Koch as well, including the earlier allegations of oil theft.

Donald Cordes, the Koch vice president for legal affairs, confirmed that at least one Koch contractor has been called before a federal grand jury in Corpus Christi, Texas, to give tes timony. The Justice Department declined comment.

If Bob Dole wins in November, his personal entanglements with the Koch Oil controversies could become as complicated for a Dole Administration as the Whitewater land deals have been for Bill Clinton.

Robert Parry is director of the investigative unit of The Nation Institute's Investigative Fund, which provided support for this article. Research assistance by Sam Parry.

Sidebar: "Petrodollar Scholars"

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