Report: 'Secret Sins' of Koch Industries

Oct. 7, 2011 — -- Charles and David Koch, the secretive billionaire brothers behind the Koch Industries, are a huge financial force in the conservative political movement. According to one estimate, they've contributed more than $100 million to conservative political causes, and a foundation that they back has trained thousands of Tea Party activists.

But now reporters for Bloomberg Markets magazine have published an article about what the magazine calls Koch Industries "secret sins" -- including business deals with Iran -- that the reporters claim reflect the same hostility to regulation that powers the Koch brothers' politics.

READ the Bloomberg Markets magazine article on the Koch Brothers

David H. Koch, 71, and Charles Koch, 75, together own Koch Industries, a Wichita, Kansas-based company started by their father Fred. The privately-held, $100 billion-dollar-a-year company owns such subsidiaries as Georgia Pacific and the maker of Lycra and Stainmaster carpets, but is best-known for its oil and energy business. Koch owns thousands of miles of pipelines and refineries in several states.

In a recent documentary, David Koch can be seen addressing Tea Party leaders and espousing American values, saying, "The American dream of free enterprise, capitalism is alive and well."

But now questions are being raised about the American values of the source of the Koch brothers' wealth.

This week's edition of Bloomberg Markets reveals that one Koch Industries subsidiary was trading with Iran and that another subsidiary in France was paying bribes to get business in six different countries.

In one previously undisclosed document from a French labor court case, Koch Industries admits the payments are "violations of criminal law." A company spokesperson told ABC News that the letter relates only to the conduct of the employee fired in the bribery case and "does not discuss or concern United States law or the company's potential liability."

"It's a document right there in the court record, out of the lips of Koch Industries," said David Evans, one of the co-authors of the Bloomberg Markets article.

David Koch declined to speak when ABC News caught up with him outside his Park Avenue apartment in New York City and asked him to respond to the magazine's allegations.

In a statement posted online, Koch Industries accused Bloomberg Markets magazine of "substandard reporting" and said the company obeys the law.

"Koch Industries and its affiliated companies are committed to compliance," said the statement, "and Koch companies strive to live by their Guiding Principles, including most importantly Principles 1 and 2, which require that all business dealings are conducted lawfully, with integrity, and in compliance with all laws."

READ Koch Industries response to the Bloomberg Markets article.

Koch Industries says it fired those responsible when it learned of the bribes in 2008, but as a private company it was able to keep all of that secret until this week's article.

"I think there are enough of these payments that I think any prosecutor would want to look further," said John Coffee, a professor at Columbia University Law School and director of the school's Center on Corporate Governance. "The only issue that I think Koch has by way of defense is showing that these payments were never authorized, encouraged or ratified by the parent company, but were only done by the foreign subsidiary."

The trading with Iran involved Koch subsidiaries in Germany and Italy providing key components for a huge state-owned petro-chemical plant, despite a U.S. ban on trade with Iran since 1995.

One order was placed on January 29, 2003, the day after President Bush told Congress in his State of the Union message that Iran continued to be an enemy of the U.S. that "represses its people, pursues weapons of mass destruction and supports terror."

Koch Industries says the trade was legal because it was done through a foreign subsidiary and no Americans were involved.

Said Asjylyn Loder, a co-author of the Bloomberg Markets article, "You're still dealing with a state that is considered by the U.S. State Department to be a sponsor of terrorism."Koch Industries says it finally stopped trading with Iran in 2006.

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