On July 11, 1988, Koch’s president, Bill Hanna, sent a companywide memo informing employees how to handle company records. He reminded employees about the code of secrecy for Koch’s records that had been distributed before. Then he ordered that “written materials which would be useful to our competitors should be destroyed by shredding, burning, or some equally effective method.”
Hanna’s memo was a license to destroy evidence. And it was issued at a time when top executives at Koch were aware that the US Senate was investigating Koch’s oil measurement practices. Under such circumstances, corporate lawyers and executives often order their employees to take special care to retain records that might be relevant to a lawsuit or investigation. Koch Industries did the opposite. It is unknown how many documents were destroyed because of that memo.
Don Cordes eventually reversed course and told Koch employees to retain evidence that might pertain to oil theft, but he didn’t do so until November of 1988, months after Hanna’s memo went out. The only reason that Cordes changed the policy was because a Koch employee in Texas complained to Cordes that he had been told to destroy all written evaluations he had made of Koch’s truck drivers and oil gaugers.
Bill Koch only fed into the company’s sense of embattlement. He launched a privately funded investigation into Koch’s measurement practices. He paid private investigators to interview Koch gaugers, and he paid Koch gaugers to speak with his investigators. He submitted some of this evidence to the Senate, even as the Senate was doing interviews of its own. An internal FBI report, which wasn’t made public until 2018, indicates that Bill Koch helped submit fifty statements from former Koch employees to US Senate investigators, claiming that the gaugers were stealing oil. The Senate ignored the statements because Bill Koch’s involvement made them “suspect,” according to an FBI memo. Rather than rely on Bill Koch’s help, the Senate and the FBI relied on Agent Jim Elroy’s investigation.
Charles Koch did more than circle the wagons. He helped coordinate a broad counterattack aimed not just at his brother but also at the US Attorney’s office. This marked a turning point in Koch’s history and in its efforts to influence US politics and public policy. His intentions were reflected in a lengthy written response that the company submitted to the Senate after Charles Koch refused to testify at the hearing. The most revealing part of the response was the headline of its first section: “The fact that the hearings were devoted almost exclusively to Koch Industries, Inc., is the result of the activities of William I. Koch and his vendetta against Koch Industries, Inc.”
“Koch presented an easy target,” the statement said. “It was politically unimportant, and because it would not have an opportunity to present its case or cross-examine witnesses, a one-sided presentation was possible.”
At the time, it might still have been accurate to call Koch Industries “politically unimportant.” The company didn’t have a major lobbying operation in Washington and kept away from the spotlight. Charles Koch spent most of his time funding think tanks, university professors, and litigation in an effort to quietly shift American political culture.
But when faced with the threat of criminal charges, Charles Koch redirected his political efforts. Rather than simply hire lawyers and lobbyists, Koch used a network of front groups, training centers, and political operatives to combat the threat. This time the network wasn’t focused on changing political culture; it was focused on the targeted, tactical goal of derailing legal efforts against Koch’s oil gathering operations.
A former Koch Industries employee named Ron Howell was at the center of the effort. Howell was the ideal employee to spearhead Koch’s political reformation effort in Oklahoma. During his tenure at Koch, Howell had specialized in commodity trading, the same kind of complex and opaque deals that Bill Koch had specialized in back in his days in Boston. Howell knew how to work in murky networks and connect the needs of several parties in ways that could ultimately benefit Koch. He was well suited for operating in the world of politics.
Koch’s first tactical goal was to change the political landscape around the issue of oil theft. In its final report, the US Senate had categorically accused Koch Industries of systematic theft. Koch needed to undermine that claim if it wanted to forestall future investigations and litigation.
Howell was well connected in Oklahoma, and was a true believer in Koch Industries. Howell was appalled when he heard that Koch was accused of stealing oil from Indians. He was convinced the allegations were entirely false.
“I’d been in the boardroom many, many, many times for many, many years,” Howell said. “It’s just a very, very honorable company. . . . So I got angry as much as anything else.”
Howell’s first job was to reshape the political narrative about Koch Industries in Oklahoma. His strategy was to reach the “producers” themselves, meaning the oil drillers who sold to Koch Industries. The Native American tribes who owned the oil well leases were the most important target. The tribes were the most visible victims of the theft, and they were also the most sympathetic. If the Indian tribes could be brought on board with Koch Industries, it would undermine the entire rationale for a criminal inquiry into Koch’s measuring tactics. If there were no victims, then how could there be a crime?
One of the primary victims of Koch’s theft was the Osage tribe in Oklahoma. Charles O. Tillman, chief of the Osage tribe, said that a team of employees from Koch Industries came to talk to him about the oil theft allegations after the US Senate released its report.
Koch sent a team of auditors to review receipts from oil leases owned by the Osage tribe. These receipts were compared against Koch’s internal figures to determine if Koch had indeed been underpaying the Osage, as alleged by the US Senate. Tillman said the tribe had little capacity to double-check Koch’s work. The tribe didn’t have an army of accountants at its disposal. The tribal members simply got checks in the mail for their oil leases and trusted the numbers.
“Koch was such a gigantic company,” Tillman said. “To me, they were doing good accounting. They were doing good business with the Osage. . . . We didn’t have anybody to rely on to refute Koch Industries.”
When Koch Industries completed its audit, the company came back to Tillman with surprising news: Koch Industries had not been underpaying for oil. The company told him that it had, in fact, been overpaying the tribe. The audit showed that the tribe actually owed Koch Industries about $22,000. Koch’s interpretation was backed up by federal authorities at the Bureau of Indian Affairs, Tillman said. He didn’t feel like the tribe could question it.
Tillman and other Osage leaders went public with their belief that Koch Industries had not stolen oil from them. In March of 1990 the local Osage newspaper, the Osage Nation News, published a story in which the Osage chiefs said Koch was innocent. The story was quoted in the mainstream Daily Oklahoman newspaper, and Koch made maximum use of the chiefs’ statements. Don Cordes, Koch’s attorney, told the Daily Oklahoman that the Osage statement “completely undermines the false allegations of the Senate subcommittee.”
Charles Tillman would later regret his role in tamping down concerns over Koch’s practices. His mind was changed after learning of testimony unearthed years later in federal lawsuits. He became convinced that Koch had, in fact, stolen oil from Indian wells. “We were wrong,” Tillman said. “We were badly informed.”