Mixing Oil and Politics

Was Koch Industries' 97-count indictment a payback for supporting George W. Bush?

March 2001By Comments

On November 16, after two oil refineries in Corpus Christi owned by Koch Industries received a commendation from the Occupational Health and Safety Administration for their operational records and safety programs, the company decided to throw a party at the refining complex’s West Plant. Local dignitaries were in attendance. The nearby Tuloso-Midway High School band played “Celebration,” its cheerleaders did a few routines, and members of its ROTC presented the colors. Afterward everyone lined up for a plate of barbecue and a glass of lemonade.

“This is a great day for Koch Industries,” company president Joe Moeller declared, standing on a platform surrounded by red-white-and-blue banners and red and blue OSHA balloons.

The day may have been great, but for Koch the preceding year had been miserable. And just a month and a half before, on September 28, the U.S. Department of Justice hit the company with a whopping 97-count criminal indictment. It charged that Koch (pronounced “Coke”) and four of its managers at the West Plant knowingly emitted harmful amounts of cancer-causing benzene into the air and water and then tried to cover it up. If convicted, the managers face maximum prison terms ranging from 20 to 35 years, and their fines could total $5 million; Koch itself could be hit with as much as $872 million in fines and penalties.

Koch immediately denied any wrongdoing. “We disagree with the charges, and we’ll aggressively defend ourselves and our employees,” says Marc Palazzo, a spokesman for Koch in Austin. “We are confident that Koch and these individuals will be exonerated.”

But Koch, an oil refiner and marketer based in Wichita, Kansas, that is the second-largest privately held company in the U.S., with $36 billion in sales, clearly had an enormous problem, especially since the indictment came on the heels of a string of other highly publicized environmental violations. Most occurred in Texas, the location of 40 percent of its assets and where 2,500 of its 11,500 workers are employed. On January 13, 2000, Koch entered into a settlement with the Justice Department and the Texas attorney general’s office in which the company agreed to pay $30 million—the largest civil penalty ever imposed on a company under federal environmental law—for oil spills from its pipelines and refineries in Texas and other states. (In one case, almost 100,000 gallons were spilled, causing a twelve-mile oil slick in Nueces Bay and Corpus Christi Bay.)

A few months before that, in October 1999, a jury in Kaufman awarded $296 million in damages to the families of two teenagers who lost their lives in a 1996 pipeline blast. The pipeline, which was owned and operated by Koch, was found to have been badly corroded. (According to one inspector, it looked like “Swiss cheese.”)

That the alleged dumping of benzene had occurred at its Corpus Christi site was also bad news. While Koch has offices across the state, its main presence is felt at its Corpus Christi refining and chemical complex, which processes 300,000 barrels of oil a day—about 13 million gallons—and employs 860 people. The twin refineries produce gasoline and diesel and jet fuel. They are the largest fuel supplier to the Dallas-Fort Worth and Dallas Love Field airports and supply as much as 90 percent of the Austin area’s gasoline.

The latest Justice Department suit began in 1996, when Sally Barnes-Soliz, who worked at Koch’s refinery complex between 1991 and 1996, informed the state’s top environmental enforcer—the Texas Natural Resource Conservation Commission (TNRCC)—that Koch had underreported benzene releases for 1995. In 1999 she and Koch settled a whistleblower lawsuit she had filed, but the terms of the settlement were never disclosed. The federal government, meanwhile, spent four years investigating the charges before presenting its 33-page indictment against the company and four of the plant’s managers: David Lamp, Vincent Mietlicki, John Wadsworth, and James Weathers, Jr.

The government alleged that the plant emitted dangerous levels of benzene—a colorless oil by-product known to cause leukemia—in 1995. How dangerous? The government said the refinery released 91 metric tons that year, more than fifteen times its limit of 6 metric tons set by the National Emissions Standards for Hazardous Air Pollutants, a set of regulations created by the U.S. Environmental Protection Agency as part of the Clean Air Act. (Other oil companies have been prosecuted for the same thing, though on nowhere near this scale. In August 1999, for example, the TNRCC fined Chevron U.S.A., Inc., $200,000 for failing to install required benzene-control equipment at its El Paso refinery.) The government also claimed that Koch had installed inadequate devices to handle the benzene, funneled it into a smokestack to release it into the air, concealed how bad the problem was, and later told regulators the facility was back in compliance when it was not.

Koch responded by issuing a three-page press release in which it argued that it had discovered a potential problem in 1995, investigated it, and self-reported it to the TNRCC. It then implemented a solution in early 1996. “We even told regulatory officials that a non-compliance penalty was appropriate,” wrote Paul Kaleta, the vice president and general counsel for Koch Industries, in an employee newsletter.

From the beginning, Koch has contended that the indictment is confusing and that it is based on unclear federal regulations regarding benzene emissions. The company also argues that the indictment was repetitive, often charging the company twice for the same violations. On December 4, Koch’s lawyers made eighteen motions challenging the document. The federal judge in the case, Janice Jack of Corpus Christi, agreed with them that the indictment was neither clear nor succinct. “What I’m sitting here wondering,” she told federal prosecutors at the hearing on Koch’s motions, “is how on earth you-all are going to explain this to a jury and how you expect to actually get a conviction on this.”

She then ordered the Justice Department to pare down its lengthy indictment, dropping repetitive counts and clarifying the remaining ones. The government did so in a filing on January 3, dropping 86 of the counts, which brought the total number of charges to 11. A week later, on January 11, when it filed its superseding indictment, it dropped 2 more charges (both were related to whether the company knowingly bypassed equipment designed to control benzene). That brought the total number of charges to 9, an astonishing shrinkage from the original 97.

While Koch won a clear victory, it still faces the harshest of the government’s charges, including knowingly releasing dangerous levels of benzene into the environment (on at least three occasions in late 1995), trying to conceal it (including reporting to the TNRCC that the year’s total benzene emissions were 0.61 metric tons, not 6 metric tons), and then claiming the problem was fixed when it wasn’t (in a letter to the TNRCC in April 1996 that said the West Plant refinery “maintains continuous compliance”).

Koch has countered that the indictment is still confusing. “We think the charges are still abstruse,” says Jane F. Barrett, an attorney in Washington, D.C., with Dyer, Ellis, and Joseph, who is defending Koch in the case. Houston attorney Dick DeGuerin, who is representing former plant manager David Lamp (who now works in Koch’s Houston office), agrees: “It’s really random and arbitrary. They’ve shortened it, but they haven’t simplified it. It’s even more confusing.”

Justice Department spokesman Christine Romano argues that her agency now has just the document it wants. “The judge asked us to streamline the indictment, and so we did,” she says. “We think it’s a very clean, straightforward indictment.”

That may be true. But the judge clearly felt that the first indictment was not. Such a radical drop in the number of counts is reminiscent of another recent case: that of scientist Wen Ho Lee at Los Alamos Nuclear Laboratories in New Mexico. All but one of the 59 charges the Justice Department brought against Lee were dropped. He pleaded guilty to a single charge of mishandling nuclear secrets. As in that case, a number of prominent Republicans have theorized that Koch’s indictment was politically motivated. Because of its timing, they believe that it was brought by the Clinton administration to penalize Koch, which has been a major contributor to the campaigns of George W. Bush, to tarnish Bush’s environmental record.

Whether it was intentional or not—”We’re bringing charges based on the facts as we found them,” insists Romano—the indictment did come at a remarkably inconvenient time for the Bush campaign. Word leaked out about the charges on the night of August 3, when Bush was giving his acceptance speech at the Republican National Convention in Philadelphia, and the indictment was filed less than two months before Election Day.

While Koch’s publicity-shy, 65-year-old chairman, Charles Koch, has said nothing publicly, and the company maintains that it is “inappropriate” to comment on the politics of the case, several Republicans, including House majority leader Dick Armey of Texas and Oklahoma congressman J. C. Watts, have come to the company’s defense. “Any informed observer would have to conclude the Clinton-Gore Justice Department is the most politicized in history,” Watts said at the time of the original indictment. “These criminal indictments are not consistent with the people I know at Koch Industries.”

Local residents have also been lining up to support Koch. Stephen Waddell, the superintendent of the Tuloso-Midway Independent School District, says the company has been a good corporate citizen, giving tens of thousands of dollars to buy land for a new school and awarding grants to develop a new technology program for his schools. “We’re concerned because they’re neighbors of ours,” he says. “We hope they’re proven innocent. If they’re guilty, however, then justice will run its course.”

Glen Kost, 64, a resident of the area for thirty years and a former dean at Del Mar College, doesn’t think Koch did anything wrong. “I was here before Koch was,” he says. “My children grew up here. This [indictment] saddens me a great deal. It’s not consistent with what this company has done in the community.”

Indeed, Koch has spent $980 million on environmental control systems at its facilities since 1990, $200 million in recent years at its Corpus Christi complex. Company executives also point out that Koch is spending $28 million on retooling the refinery to halve the amount of ground-polluting sulfur in the gasoline it produces—four years in advance of tighter EPA requirements. It will begin selling the cleaner fuel this May in Austin, San Antonio, Waco, and Corpus Christi. Koch says it plans to spend $160 million at the complex to cut sulfur levels by up to 90 percent by 2005.

“We’re addressing real environmental problems and making real improvements,” Charles Koch said in a company brochure extolling its environmental record. “We will continue to strive to become a model for environmental excellence.” When the trial starts on April 9, it will be up to Koch’s lawyers to convince a jury that its citizenship is as good as its PR.

Related Content