Billionaire Koch brothers in the dock over trades with Iran

Tea Party backers made multimillion-dollar deals with Tehran, report claims

Los Angeles

The leading financiers of the Tea Party movement were last night attempting to rebut claims that a portion of their wealth comes from secretly doing business with the most un-American trading partner imaginable: the hard-line government of Iran.

Charles and David Koch, the prominent billionaires who fund a string of influential conservative think-tanks, stand accused of selling tens of millions of dollars worth of petrochemicals to Tehran, despite a longstanding US trade embargo against the nation that the former President, George W Bush, dubbed a pillar of his "Axis of Evil".

It has been reported that Koch Industries used foreign subsidiaries to supply the products, in an apparent effort to stay within the letter – if not the spirit – of the law. It has been suggested that the company used dozens of lawyers to help find a way around the embargo, and was trading with Mahmoud Ahmadinejad's regime as recently as 2007.

The news was just one of a string of revelations made by Bloomberg Markets magazine, which gave 14 reporters, in several countries, six months to investigate the brothers and their business dealings. Their 14-page report was published on Sunday night.

Koch Industries yesterday issued a lengthy statement claiming that the article was the result of "substandard reporting" and contains "major inaccuracies". It insisted the sales to Iran were legal, and said that Bloomberg's reporting team "relied heavily on unreliable sources, despite our warnings".

The magazine's piece represents the latest effort by journalists to get to the bottom of the source of Charles and David Koch's fortune. The brothers, aged 75 and 71 respectively, built their corporation from an oil company they inherited from their father. They are now worth around $20bn each.

Though the siblings have traditionally kept a low profile, in recent years they have faced increased scrutiny for the roughly $50m they have donated since 2006 to non-profit organisations and think-tanks. These groups organise Tea Party events, and campaign against what they see as excessive taxes and burdensome industry regulation.

Bloomberg's piece relies heavily on information gleaned from newly obtained documents which were lodged with French employment tribunals in two labour cases involving the company's European subsidiary, Koch-Glitsch.

In addition to detailing the sales to Iran, the documents suggest the company paid illegal bribes in six countries between 2002 and 2008 to win contracts in Africa, India and the Middle East. It allegedly then sacked a compliance officer who complained to superiors about the practice. Some of the paperwork is described by Sara Sun Beale, a criminal law professor at Duke Law School, as a "smoking gun". It includes communications in which Koch employees admit that their "activities constituted violations of criminal law".

Bloomberg's reporters spoke to a string of former employees who were highly critical of the company's ethics. It offered their perspective on a number of controversies which Koch Industries have suffered during recent years. They say the corporation, which never publishes its accounts and says only that its annual revenue is approximately $100bn a year, "rigged prices with competitors, lied to regulators and repeatedly ran afoul of environmental regulations, resulting in five criminal convictions since 1999 in the US and Canada".

In one incident, the firm was alleged by US Senate investigators to have pilfered 1.95 million barrels of crude oil from federal lands by falsifying purchasing records. One former employee said the practice of incorrectly measuring oil was known internally as "The Koch Method". In another one of the misdemeanours detailed in the piece, the firm was found by regulators to have ignored federal rules regarding oil pipeline safety. This reportedly resulted in an explosion which caused the death of two people in Lively, Texas, in 1996.

A spokesman for Koch acknowledged some past mistakes. However, in a statement which ran to almost 2,500 words, it said the company has altered its previous practices to stay within the law. With regard to trading with Iran, their approach is "more conservative than that required by US law".

The billionaire brothers

* The two brothers, Charles, 75 and David, 71, each have a net worth of $20bn after inheriting their father's small oil company and turning it into a huge conglomerate operating in dozens of countries. They are enthusiastic promoters of lower taxes, free markets and small government and they have given millions of dollars to right-wing candidates. The brothers have hit back at what they perceive as a media obsession with their activities. A "Koch counter" on the company website measures the "fixation at The New York Times" and totals the newspaper's reports about them.

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