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Bloomberg Whiffs, Part 1

Last Friday, I wrote about a Bloomberg Markets story on Koch Industries which at that time was still in preparation. According to multiple reports, the story was expected to focus on claims that a European Koch subsidiary had business transactions in Iran, while another European subsidiary made improper payments to government officials and others overseas. I pointed out that it is legal for foreign subsidiaries of American companies to do business in Iran, and many of them do. I also noted that some years ago, Koch barred all of its affiliates from doing business in Iran, thereby going beyond legal requirements.

As to the improper payments, I pointed out that Koch discovered that they had been made and fired the responsible employees. Here, too, Koch is one of hundreds of large American companies that have caught employees of foreign subsidiaries violating the Foreign Corrupt Practices Act by engaging in what are, in many parts of the world, standard practices. I concluded by writing an email to the Bloomberg editor responsible for the story, Jonathan Neumann, in which I asked a series of questions bearing on Bloomberg’s journalistic practices and ethics.

The Bloomberg article appeared today with more of a whimper than a bang. It promised much and delivered little. The printed version is titled “The Secret Sins of Koch Industries,” while the online version is titled “Koch Brothers Flout Law With Secret Iran Sales.” The printed version includes a summary paragraph that says in part, “David and Charles Koch, billionaire brothers and major Tea Party backers, run a corporate empire that has made illicit payments to win contracts, sold chemical equipment to Iran in defiance of a U.S. trade ban….”

So both versions explicitly claim that Koch broke the law by allowing a foreign subsidiary to make sales in Iran. But if you actually read the article, you find that Bloomberg contradicts its own lurid claim by acknowledging that in fact, Koch was careful to make sure that its subsidiary’s conduct was fully lawful:

Internal company records show that Koch Industries used its foreign subsidiary to sidestep a U.S. trade ban barring American companies from selling materials to Iran. Koch-Glitsch offices in Germany and Italy continued selling to Iran until as recently as 2007, the records show.

The trade ban doesn’t apply to foreign subsidiaries.

Koch Industries took elaborate steps to ensure that its U.S.-based employees weren’t involved in the sales to Iran, internal documents show.

Yes, that is what Koch and other companies have to do to comply with the law.

Internal Koch-Glitsch correspondence shows that the company coordinated with Koch Industries lawyers in the U.S. to make sure that American employees didn’t work on sales to Iran. Elena Rigon, now Koch-Glitsch compliance manager for Europe, based in Italy, in December 2000 addressed a memo outlining compliance guidelines to company managers in her region.

In another e-mail, Rigon said all offices had to go through a checklist for each estimate quoted for materials headed to Iran. “Your staff shall send this form to me since I have to send it to the lawyers in the USA as part of the compliance program,” Rigon wrote in the e-mail. “If somebody happens to find out that any U.S. persons are involved in this project or U.S. material is delivered to Iran you CANNOT quote.”

In other words, Koch Industries insisted on strict compliance with the law. Bloomberg gives the last word to Koch’s spokeswoman, Melissa Cohlmia:

“Koch-Glitsch had protocols in place that were consistent with applicable U.S. laws allowing such sales at the foreign subsidiary level,” Koch’s Cohlmia says.

Which Bloomberg can’t, and doesn’t, deny. So the supposedly explosive charge that Bloomberg chose to headline–Koch “flout[ed] the law” and acted “in defiance of a U.S. trade ban” is simply false. Koch did no such thing; what is more, unlike hundreds of other American companies, it has voluntarily gone beyond the requirements of the law and has, in more recent years, prohibited all subsidiaries from doing business in Iran. As I noted in my initial post, the list of American companies whose foreign subsidiaries have sold products or provided services in Iran is an impressive one. It includes Alcatel-Lucent, Caterpillar, ConocoPhillips, Dresser-Rand, Exxon Mobil, General Electric, Halliburton, Hewlett-Packard, Honeywell, Ingersoll Rand, KPMG and Tyson Foods, to name just a few. These companies aren’t “flouting the law” any more than Koch Industries is; they are following it. But one wonders; why, exactly, did Bloomberg choose to single out Koch? Has it done a similar “expose” on any of the other companies, numbering in the hundreds, that have legally done business in Iran?

Actually, I didn’t just wonder; I asked Bloomberg’s editor that, among other questions:

4) Reports also indicate that your story will focus on the fact that a sub-subsidiary of Koch in Europe sold goods to Iran. Why do you find this newsworthy? Has Bloomberg done stories on the hundreds of other American companies whose subsidiaries have done business with Iran, legally? If not, why not? Do you consider it praiseworthy that Koch has gone beyond the requirements of the law by dictating that no Koch affiliate will do business with Iran?

So far, Mr. Neumann has not responded to my inquiry.

The issue of Iran is a good place to begin because it highlights one of the fundamental problems with Bloomberg’s story: it could have been written about nearly any large manufacturing company. If a company has more than 50,000 employees scattered around the world, someone somewhere will violate company policies or otherwise screw up. If a company refines and ships petroleum products, manufactures paper products, etc.–as opposed to, say, designing apps–it inevitably will encounter environmental and safety issues. Koch’s spokeswoman put it well:

“We are proud to be a major American employer and manufacturing company with about 50,000 U.S. employees,” she wrote. “Given the regulatory complexity of our business, we will, like any business, have issues that arise. When we fall short of our goals, we take steps to correct and address the issues in order to ensure compliance.”

Bloomberg’s article offers a pastiche of five or six incidents which took place over a period of decades, are completely unrelated, and were selected by Bloomberg simply because they can be used to put Koch in a bad light. Bloomberg says that “Koch’s history of flouting rules covers more than two decades,” but what that actually means is that Bloomberg had to go back a quarter century to find a handful of examples where Koch had a regulatory problem. (Actually, one of the instances cited by Bloomberg goes back to the Truman administration.) The same attack could be made against any large manufacturing company. Let’s take just one example.

General Electric is the Obama administration’s favorite U.S. company (with the possible exception of “green” energy sinkholes like Solyndra). Yet everything Bloomberg wrote about Koch Industries could just as easily have been written about G.E. G.E.’s foreign subsidiaries have done business in Iran, and G.E., like Koch, has publicly noted that its subsidiaries’ dealings with Iran were legal. Likewise, employees of one or more G.E. companies paid bribes to obtain business in Iraq, and just last year, G.E. paid a $23.4 million fine as a result. And G.E. has had environmental problems, like–to name just a few–contaminating the Hudson and Housatonic Rivers with PCBs, along with the Coosa River Basin, and releasing dimethyl sulfate, chlorine, 1, 1, 1, -trichloroethane, ammonia, and toluene from its silicone manufacturing plant in Waterford, New York. G.E. has had product liability problems, including claims of wrongful death that were, tragically, justified. And, while Bloomberg makes a laughable price-fixing claim against Koch, G.E. was in fact a party to one of the most famous price-fixing conspiracies of all time.

So, is Bloomberg’s story titled “The Secret Sins of General Electric”? Or, in the online version, “General Electric Flouts Law With Secret Iran Sales?” Of course not. G.E. is generally identified with the Democratic Party. Does anyone seriously doubt that Bloomberg wanted to do a hit piece on Koch Industries solely because that company’s owners are prominent conservatives? Of course not.

Speaking of the Democratic Party, it has quickly jumped on its ally’s bandwagon. Today the Democratic Congressional Campaign Committee used Bloomberg’s report to attack an Arkansas Republican Congressman, Tim Griffin:

NEWS RELEASE

Representative Tim Griffin (AR-02)’s campaign for Congress has benefited from over $160,000 from controversial Koch Industries which profited from business with Iran despite the country’s known links to financing terrorists, a new Bloomberg investigation found.

Bloomberg reports that “Koch Industries — in addition to being involved in improper payments [bribes] to win business in Africa, India and the Middle East — has sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.”

This is what Andrew Breitbart calls the Democrat-media complex. From Bloomberg’s perspective it is “mission accomplished,” unless readers actually read its article critically. We will have more to say about other aspects of Bloomberg’s politically-motivated hit piece, but for now, I am sending another email to Jonathan Neumann:

Dear Mr. Neumann:

I sent you an email on September 30, in which I indicated that I am investigating Bloomberg’s journalistic practices and ethics. I asked you nine questions about Bloomberg’s article on Koch Industries which was, at that time, still unpublished. You have not responded to that email. Please answer my nine questions, which seem all the more pertinent now that your article on Koch has appeared.

Having now read the article which you edited, I have a few more questions:

10) Do you agree with Koch Industries that its European subsidiary’s business dealings in Iran were legal?

11) If not, what evidence do you have that they were illegal? There was none in your article. (I am a lawyer, by the way.)

12) Given that the transactions were not illegal, why did Bloomberg headline its online article “Koch Brothers Flout Law With Secret Iran Sales?”

13) In the article you edited, you wrote that Koch Industries is “obsessed with secrecy, to the point that it discloses only an approximation of its annual revenue–$100 billion a year–and says nothing about its profits.” Is Bloomberg privately owned, like Koch Industries? Does Bloomberg disclose its annual profits?

14) Did you coordinate your article with the Democratic Congressional Campaign Committee?

I have analyzed your article here and here.

John Hinderaker

So far, Mr. Neumann has stonewalled. It may be helpful if you would send him a politely-worded email asking him to answer my questions and cooperate in my investigation of Bloomberg’s journalistic practices. His email is jneumann2@bloomberg.net.

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