There is one person, however, who is present for the entire fifty-plus-year span of this story. He resides, almost the entire time, at the pinnacle of power at Koch Industries, driving it forward, shaping it to his vision, and reaping its great rewards. Charles Koch is the author, more than anybody, of Koch Industries’ story.
Even though his influence is felt throughout Koch Industries, and throughout America’s political system, Charles Koch remains a remarkably opaque figure. He prizes his privacy and cherishes secrecy. Countless people have tried to understand Charles Koch by looking at him from outside the tall walls and dark glass windows of Koch Industries headquarters. One of those people is an FBI special agent named James Elroy. He dedicated many years of his life to investigating the leadership organization of Koch Industries. Elroy was convinced, in 1988, that Charles Koch and his lieutenants were engaged in a massive criminal conspiracy.
That is why Elroy positioned himself, one day, in the middle of an Oklahoma cow pasture, holding a camera with a wide-angle lens, trying to surveil Charles Koch’s employees. That is the moment where this book begins.
PART 1
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THE KOCH METHOD
CHAPTER 1
* * *
Under Surveillance
(1987–1989)
FBI special agent James Elroy stood on a remote expanse of pastureland and waited for the man from Koch Oil to arrive. Elroy had a 600-millimeter camera, a telephoto lens, and plenty of film. Perhaps most importantly, he also had a bag of feed cubes for the cattle. Elroy had arrived early at this carefully chosen spot to stake out his position. He stood at a place with a commanding view of a large, cylindrical oil tank. The tank was one of hundreds just like it that were scattered throughout the Oklahoma countryside, sitting on land that was desolate on its surface but which covered rich deposits of underground crude-oil lakes. The oil was slowly drained by unmanned pumps that bobbed up and down day and night, drawing out the crude and sending it into the big metal tanks. When those tanks were finally full, an employee from Koch Oil would arrive in a big truck, siphon out the fuel, and take it to market. Elroy planned to be ready for him.
Elroy opened the feed bag, grabbed handfuls of cubes, and scattered them on the ground. Soon enough, the cattle began to congregate around him, lowering their heads to sniff through the grass and pick out pieces of their unexpected meal. As he hoped would happen, Elroy was soon fully encircled by the cattle. On the flatland prairies of Oklahoma, this was about the only way to stay hidden.
For a long time, it was just Elroy out there, all alone. The nearest town was called Nowata, and it wasn’t much more than a tiny grid of neighborhoods surrounding a strip of one-story brick buildings that passed as downtown. In Nowata, the main drag wasn’t called Main Street: it was called Cherokee Avenue. Elroy was standing in “Indian Country,” as outsiders called it, the Indian reservations that were home to the last remnants of American tribes like the Osage and Cherokee. Elroy was familiar with this country, having been an FBI agent in Oklahoma City for several years. During his time in Oklahoma, Elroy had developed a specialty in breaking open large, complicated fraud schemes—his biggest case was a massive public corruption sting in the early 1980s that netted more than two hundred convictions, including two-thirds of all the sitting county commissioners in the state of Oklahoma.
So maybe it was inevitable that Elroy would be sucked into this investigation and would find himself standing in the middle of a cattle herd, staring at a lonely oil tank. The surveillance was part of a special detail—the FBI had loaned Elroy out as a special investigator for the US Senate. Although he had a new boss, the job was a familiar one. Elroy was collecting evidence for a sprawling, complex fraud case. Elroy’s new bosses in the Senate were increasingly convinced that the obscure company called Koch Oil was engaged in a conspiracy to steal millions of dollars’ worth of oil from local Indians—and possibly US taxpayers, too. Elroy’s job was to document whether the fraud was real. That’s why he had the 600-millimeter camera at the ready.
Soon enough, Elroy spotted his target: a lone truck was coming down a narrow road that led to the oil tank. As the truck approached, Elroy was well concealed behind a wall of cattle. He raised his camera and aimed it at the truck as it pulled alongside the oil tanker and a man got out.
Elroy then trained his telephoto lens on the Koch Oil man as he went about his work, down by the oil tank. The camera went in and out of focus. Blurry, then sharp. Then Elroy could see the Koch Oil man as if he were standing just feet away. His face, his clothing, his hands as he worked. Elroy focused in.
Snap. Snap. Snap.
* * *
Elroy’s photos were developed in a darkroom. The images were vague at first, but the picture clarified with each dip in a chemical bath, shapes and profiles refining and sharpening until the complete picture came into view. The Koch Oil man approaching the oil tank. Opening it. Measuring the oil within. Writing a receipt. The images were crisp and clear. Inarguable evidence. Over time, Elroy developed a stack of images like this, high-quality shots that allowed him to see the Koch Oil man perfectly. The 600-millimeter telephoto lens had done its job.
As clear as the photos were, Elroy did not plan to use them as evidence in court. They were going to be a tool for his investigation—a way to exploit human weakness.
Elroy learned how to investigate large conspiracies for the FBI during the 1980s. To break open a large conspiracy, you start at the edges. You find the most vulnerable link in the large chain of corruption, and you exploit it. That’s why Elroy decided to focus on the Koch Oil employees who actually emptied the oil tanks. These were the kind of people who were very quick to start talking when an FBI agent knocked on their door. They were the working stiffs; the most visible players in what Elroy was increasingly convinced was a complex conspiracy.
Elroy wasn’t the typical FBI man, with the stereotypical crew cut and shiny black shoes. When he graduated from the FBI Academy in Quantico, Virginia, in 1970, Elroy looked as much like a young corporate attorney as anything else, with a slightly shaggy mop of dark hair and a knowing smirk on his face. He knew American criminal code inside and out, was foulmouthed and well trained with a rifle. In spite of his irreverence, he was a law-and-order man through and through. He revered Director J. Edgar Hoover, whom he saw as a visionary leader rather than the bureaucratic despot that many historians judged him to be. When Elroy was told he’d be working for the US Senate, he wasn’t thrilled. As a rule, Elroy thought that Senate investigations were political theater. As an FBI man, he was accustomed to operating under strict legal rules about gathering evidence to ultimately prosecute a criminal case. The Senate investigations seemed lightweight compared to that: the senators only seemed to ever want enough evidence to support a public hearing in Washington so they could have a show. But Elroy’s bosses knew him well. They knew that when he was assigned to a case, he became borderline obsessed. And that is exactly what happened in the case of Koch Oil.
The Senate had gotten a tip that Koch Oil was stealing oil from Indian reservations throughout Oklahoma. These Indian lands were administrated by the federal government, so the Senate took a keen interest in the allegations. Elroy was told that the scheme was relatively simple: Koch Oil was an oil transportation company. The company would show up at the metal oil tanks, drain the oil, and then ship it to the market by truck or pipeline. But every time Koch drained the oil, it would intentionally underreport just how much it was taking. If Koch drained a hundred barrels, for example, it would say it had only gathered ninety-nine barrels. This meant that Koch was getting one barrel for free every time it bought oil.