Bloomberg's "The Secret Sins of Koch Industries" a dud? -- UPDATED

Recently, journalism's badboy, Justin Elliott, who believes that Sarah Palin did not fake a pregnancy, touted a November Bloomberg Markets story that, he claimed, had "spooked" the Koch brothers. Elliott based his claim on the existence of what he called "prebuttals," presumably coined from "pre-publication rebuttals." Bloomberg Markets' article has been published on the internet, too, where it is titled "Koch Brothers Flout Law With Secret Iran Sales."

Interestingly, the article is written in such a way that it doesn't allege that Koch Industries broke the law in its dealings with Iran; it may insinuate that they broke the law, and with an uncareful reading of the article some may infer that the company broke the law. Bloomberg Markets provided the article to Koch Industries prior to publication in order to obtain their comments. Regarding sales to Iran, Koch's Director of Corporate Communications, Melissa Cohlmia, e-mailed this to the article's publisher:

Regarding sales to Iran, she wrote, “During the relevant time frame covered in your article, U.S. law allowed foreign subsidiaries of U.S. multinational companies to engage in trade involving countries subject to U.S. trade sanctions, including Iran, under certain conditions.”

The article claims that Koch Industries "sidestepped" a trade ban with Iran; however, the evidence the article cites for that claim could just as easily be construed to be an effort to comply with the law, and there is nothing sinister about that.

Indeed, In April of 2008, Koch Industries hired a compliance and ethics manager for Europe and Asia, Ludmila Egorova-Farines, who immediately traveled to Koch's corporate headquarters in Wichita to attend an internal compliance conference. Egorova-Farines then traveled to France, in May, where she discovered that a subsidiary in Arles had paid bribes to obtain contracts. When she notified headquarters of what she had found, Koch sent investigators to look into her allegations. By September of the same year, those investigators had found evidence of violations of criminal law (bribes to obtain contracts) in six countries, beginning in 2002.

Egorova-Farines was removed from the investigation in August, 2008, and she was terminated for incompetence in June of 2009. She sued Koch-Glitsch, a Koch Industries subsidiary, for wrongful termination, but Bloomberg Markets' article does not state whether her suit was successful; however, it does state that a letter from "Koch Industries," written on December 8, 2008, was entered into evidence at a French trial, and states that the letter became public in a French civil court ruling in September of 2010. Perhaps the letter was entered into evidence during Egorova-Farines wrongful termination suit. Perhaps the French court's ruling was that Egorova-Farines was not improperly terminated.

The "smoking gun," mentioned by Sara Sun Beale, was found, apparently, in the letter made public by the French court. Apparently, but we're not sure, the letter is about paying bribes to obtain contracts. Did Koch Industries pay a bribe to obtain an Iranian contract? All we know at this point is that the investigators found evidence of bribery to obtain contracts in "six countries." If the company did pay a bribe to obtain business in Iran, was the business that it obtained forbidden by law? There are two separate issues there.

One of the greatest realizations of human thought has been this: If event A preceeds event B, it doesn't necessarily follow that event A caused event B. It wouldn't be wise to conclude that Egorova-Farines was fired because she found evidence of bribery to obtain contracts. Neither should we conclude that she received any training about spotting bribery when she attended the internal compliance conference before she went to France and discovered the bribery.

Ranting about the activites of one company doesn't address the real problem. Let's put things into some perspective: if the estimate of Koch Industries' revenue of $100 Billion per year is correct, and if the estimate of $100 Million Koch Brothers' gifts to right-wing causes is correct, then they have only spent one-thousandth of the company's one-year revenues on those causes, if their $100 Million donation occurred in just one year. Those donations represent 1 dollar for every 1000 dollars in revenue -- just one tenth of one per-cent, if the donations occurred in one year only. To put it further into perspective, the revenues of Koch Industries are but a fraction of the revenues of all corporations, many of which lobby for regulatory reform.

The real problem is that many businesses are opposed to regulation, and some would like to tear down existing regulatory law. A letter to your members of congress ranting about Koch Industries won't get far. Congress isn't interested in making laws against any corporation; Congress is, however, keenly interested in business regulation and over the years has enacted regulatory law and has delegated some of its authority to various agencies which have made administrative law. An argument based solely on the activity of one company is a poor argument. Remember that the Koch Brothers' gifts are derived from Koch Industries revenues which are but a small part of all corporate revenues. If your member of congress were to respond to an argument based solely on the activites of Koch Industries, he or she might reasonably ask you to provide additional examples, examples of how other companies have behaved. Unfortunately, no one can argue from "illegal activity" without knowing that a law has been broken. So, in order to take this problem up with members of congress, a better approach is to advocate for retaining existing regulatory law or to argue for strengthening regulatory law. Arguments for retaining, even strengthening, existing regulatory law aren't difficult to come by, and it's easy to send a letter to your representatives, but a letter should be written by you. Congress can be old-fashioned, but its members are quite capable of screening their incoming correspondence for astroturf, mass e-mail and fax campaigns ... whatever you'd like to call it.

If it's any consolation, if the Koch Brothers have donated to the Tea Party, then they have made a poor investment. The Tea Party fell into disrepute over its don't-care-if-we-default attitude during the debt ceiling negotiations. So much so that Sarah Palin went to Indianola, Iowa to deliver what she billed a "full throated defense of the tea party." That was a dud, too.

Whether an action over the evidence, if any, contained within the letter made public by the French court ever occurs will be interesting to learn. If it happens, we shouldn't assume that it was precipitated by Bloomberg Markets' article. Remember about event A and event B? In fact, Department of Justice should be given credit for knowing about a lot of things before anyone else does. The article makes clear that a department spokeswoman would not confirm or deny the existence of any investigation.

Did I miss anything? Do I need to go read the "prebuttals?" I don't think so. I can think for myself.

Justin Elliott's tout is "Koch brothers spooked by forthcoming story."

Bloomberg Markets' story is "Koch Brothers Flout Law With Secret Iran Sales."

A New Yorker story is "Covert Operations," which is Jane Mayer's article about the Koch brothers. The $100 Billion and $100 Million figures, used above, were obtained from that article.

Update: Koch Industries has issued a press release, "Koch General Counsel Mark Holden Responds to Bloomberg Markets Magazine," which includes a link to an Engish translation of the French court's decision, mentioned above, as well as affidavits filed by Koch Industries. I haven't had time to read them, but they may be interesting. Now, don't have a knee-jerk response and assume that I am defending Koch Industries anywhere in this post. I am not. My post is simply legitimate criticism of the article posted by Bloomberg Markets, and it suggests how the larger problem of corporations' desire for regulatory reform can be addressed.

Update: Reading from the decision of the French court, this was the courts decision on grounds for termination:

The Tribunal note that several times the employer strived to find the compatibility between its needs and Mrs. EGOROVA-FARINES ’ skills.

Mrs. EGOROVA-FARINES interpreted this search for compatibility as a challenge of both her personally and her skill. This likely led to some misunderstanding which became more acute month after month. (And probably to a deterioration of her health).

Given the impossibility to communicate which arose between the employee and itself, the employer was forced to draw conclusions: i.e. terminate Mrs. EGOROVA-FARINES .

The Tribunal dismiss of all Mrs. EGOROVA-FARINES ’s claims.

From the court's decision, too:

Egorova-Farines alleged in her wrongful termination suit that she had been terminated "for having reported (in May 2008) alleged facts of corruption at the Company." There is not an admission of criminal activity by Koch there.

The article states that Koch's termination letter to Egorova-Farines contains a "smoking gun." It quotes, “Those activities constitute violations of criminal law,” without any context, presumably from Koch's termination letter of December 2008 to Egorova-Farines. Egorova-Farines probably has the letter; she was a source for the article. How did Sara Sun Beale, who states, "The payments to win contracts documented by Koch investigators may violate U.S. law," obtain the letter? Does the letter contain a "smoking gun?" Something that would damage Egorova-Farines credibility? The article's omission of the disposition of Egorova-Farines suit and failure to quote more from the termination letter is troubling, because it doesn't permit the reader to evaluate important parts of the story's background, and it doesn't permit the reader to evaluate the credibility of one of the story's primary sources -- "Egorova-Farines says," "she says," ... .

The article's statement:

Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention.

is disingenous in light of the French court's verdict. I suppose that if that was the extent of her relationship with her employer she might have been rewarded; however, the "reward" for doing one's job is often only that one gets to come back tomorrow.

In the first affidavit,

"On or about May 30, 2008 when the allegations of possible bribery ... ." There is not an admission of criminal activity by Koch there.

Is the article's statement "By September of that year, the researchers had found evidence of improper payments to secure contracts in six countries dating back to 2002, authorized by the business director of the company’s Koch-Glitsch affiliate in France" accurate?

Update: Pro Publica -- "Journalism in the public interest" -- has posted "What Are the Latest Revelations About Koch Industries?"