Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right

by Jane Mayer

Oddly enough, the fiercely libertarian Koch family owed part of its fortune to two of history’s most infamous dictators, Joseph Stalin and Adolf Hitler. The family patriarch, Fred Chase Koch, founder of the family oil business, developed lucrative business relationships with both of their regimes in the 1930s.

Meanwhile, in an ironic turn, the Hamburg refinery that Winkler-Koch built became an important target of Allied bombing raids. On June 18, 1944, American B-17s finally destroyed it. The human toll of the bombing raids on Hamburg was almost unimaginable. In all, some forty-two thousand civilians were killed during the long and intense Allied campaign against Hamburg’s crucial industrial targets.

David Koch recalled that his father tried to indoctrinate the boys politically, too. “He was constantly speaking to us children about what was wrong with government,” he told Brian Doherty, an editor of the Koch-funded libertarian magazine Reason and the author of Radicals for Capitalism, a 2007 history of the libertarian movement with which the Kochs cooperated. “It’s something I grew up with—a fundamental point of view that big government was bad, and imposition of government controls on our lives and economic fortunes was not good.”

1958, Fred Koch became one of eleven original members of the John Birch Society, the archconservative group best known for spreading far-fetched conspiracy theories about secret Communist plots to subvert America. He attended the founding meeting held by the candy manufacturer Robert Welch in Indianapolis.

He wrote admiringly of Benito Mussolini’s suppression of Communists in Italy and disparagingly of the American civil rights movement. The Birchers agitated to impeach Chief Justice Earl Warren after the Supreme Court voted to desegregate the public schools in the case Brown v. Board of Education, which had originated in Topeka, in the Kochs’ home state of Kansas. “The colored man looms large in the Communist plan to take over America,” Fred Koch claimed in his pamphlet. Welfare in his view was a secret plot to attract rural blacks to cities, where he predicted that they would foment “a vicious race war.” In a 1963 speech, Koch claimed that Communists would “infiltrate the highest offices of government in the U.S. until the President

At the Freedom School, Charles became particularly enamored of the work of two laissez-faire economists, the Austrian theorist Ludwig von Mises and his star pupil, Friedrich Hayek, an Austrian exile, who visited the Freedom School. Hayek’s book The Road to Serfdom had become an improbable best seller in 1944, after Reader’s Digest published a condensed version. It offered a withering critique of “collectivism” and argued that centralized government planning, in which liberals were then engaged, would lead, inexorably, to dictatorship. In many respects, Hayek was a throwback, romanticizing a lost golden age of idealized unfettered capitalism that arguably never existed for much of the population. But Hayek’s views were more nuanced than many American adherents understood. As Angus Burgin describes in The Great Persuasion, many reactionary Americans knew only the distorted translation of Hayek’s work that had appeared in Reader’s Digest. The conservative publication omitted Hayek’s politically inconvenient support for a minimum standard of living for the poor, environmental and workplace safety regulations, and price controls to prevent monopolies from taking undue profits.

Fred Koch also left his sons the building blocks with which they could construct one of the most lucrative corporate empires in the world. The crown jewel, according to one former Koch Industries insider, was the Pine Bend Refinery, then called the Great Northern Oil Company, in Rosemount, Minnesota, not far from Minneapolis. In 1959, Fred Koch bought a one-third interest in the concern.

Pine Bend was a gold mine because it was uniquely well situated geographically to buy inexpensive, heavy, “garbage” crude oil from Canada. After refining the cheap muck, the company could sell it at the same price as other gasoline. Because the heavy crude oil was so cheap, Pine Bend’s profit margin was superior to that of most other refineries.

According to Doherty’s history, the Kochs came to regard elected politicians as merely “actors playing out a script.” Instead of wasting more time, a confidant of the Kochs’ told Doherty, the brothers now wanted to “supply the themes and words for the scripts.” In order to alter the direction of America, they realized they would have to “influence the areas where policy ideas percolate from: academia and think tanks.”

One attractive solution for enormously wealthy families like the Scaifes and the Kochs was to donate to their own private philanthropic foundations. By doing so, they could get the tax deductions and still keep control of how the charitable funds were spent.

The real enemies, he suggested, were “the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences,” and “politicians.”

Frustrated by the electoral process, Scaife, like Charles and David Koch, sought to finance political victory through more indirect means. Though he continued to donate money to political campaigns and action committees, he began to invest far more in conservative institutions and ideas. His private foundations emerged as a leading source of funds for political and policy entrepreneurship. Think tanks, in particular, became what Piereson called “the artillery” in the conservative movement’s war of ideas. In his memoir, Scaife estimates that he helped bankroll at least 133 of the conservative movement’s 300 most important institutions.

Politicians were prisoners of conventional wisdom, in Hayek’s view. They would have to change how politicians thought if they wanted to implement what were then considered outlandish free-market ideas. To do that would require an ambitious and somewhat disingenuous public relations campaign. The best way to do this, Hayek told Fisher, who took notes, was to start “a scholarly institute” that would wage a “battle of ideas.” If Fisher succeeded, Hayek told him, he would change the course of history.

David Brock, a conservative apostate who became a liberal activist, described the Heritage Foundation, where he was a young fellow, as almost completely under the thumb of its wealthy sponsors. In his tell-all book Blinded by the Right, he writes, “I saw how right-wing ideology was manufactured and controlled by a small group of powerful foundations” like Smith Richardson, Adolph Coors, Lynde and Harry Bradley, and John M. Olin. Scaife in his estimation was “by far the most important”; indeed, Brock describes him as “the most important single figure in building the modern conservative movement and spreading its ideas into the political realm.”

Scaife’s extraordinary self-financed and largely tax-deductible vendetta against Clinton demonstrated the impact that a single wealthy extremist could have on national affairs, and served as something of a dress rehearsal for the Kochs’ later war against Obama. Presidents might surround themselves with Secret Service agents and phalanxes of lawyers and operatives, but Scaife proved how hard it was to defend against unlimited, untraceable spending by an opponent hiding behind nonprofit front groups.

By the time the John M. Olin Foundation spent itself out of existence in 2005, as called for in its founder’s will, it had spent about half of its total assets of $370 million bankrolling the promotion of free-market ideology and other conservative ideas on the country’s campuses. In doing so, it molded and credentialed a whole new generation of conservative graduates and professors. “These efforts have been instrumental in challenging the campus left—or more specifically, the problem of radical activists’ gaining control of America’s colleges and universities,” Miller concluded in a 2003 pamphlet published by the Philanthropy Roundtable, an organization run for conservative philanthropists.

For decades, Saltville had been a prototypical company town, owned and run in an almost feudal fashion by its only large employer, the Olin Corporation.

But for the employees, there was an ominous, unaddressed issue. Olin’s chlorine production process used huge quantities of mercury, which the plant leaked into the public waterways on a daily basis. From 1951 to 1970, the company estimated its factory spilled about a hundred pounds of mercury every day. Most of it emptied directly into the North Fork of the Holston River, which ran picturesquely along the town’s edge. An open sediment pond, meanwhile, into which the company dumped its mercury waste, contained an astounding fifty-three thousand pounds of the toxic substance.

Without the rigorous peer-reviewed standards required by prestigious academic publications, the Olin Foundation was able to inject into the mainstream a number of works whose scholarship was debatable at best. For example, Olin Foundation funds enabled John R. Lott Jr., then an Olin fellow at the University of Chicago, to write his influential book More Guns, Less Crime. In the work, Lott argued that more guns actually reduce crime and that the legalization of concealed weapons would make citizens safer. Politicians advocating weaker gun control laws frequently cited Lott’s findings. But according to Adam Winkler, the author of Gunfight, Lott’s scholarship was suspect. Winkler wrote that “Lott’s claimed source for this information was ‘national surveys,’ ” which under questioning he revised to just one survey that he and research assistants had conducted. When asked to provide the data, Winkler recounts, Lott said he had lost it in a computer crash.

Around the same time, the Olin Foundation made a key $25,000 investment of its own in an unknown writer named Charles Murray, funding a grant at the Manhattan Institute that would support a book he was writing that attacked liberal welfare policies. The backstory to Losing Ground, Murray’s book, was a primer on the growing and interlocking influence of conservative nonprofits. At thirty-nine, Murray was an unknown academic, toiling thanklessly at a Washington Beltway firm evaluating U.S. government social programs. Frustrated and just scraping by, he was about to try writing a thriller novel in order to make ends meet when his application for a job at the Heritage Foundation caught the eye of the conservative philanthropy world. Soon, he was the beneficiary of its growing network. Heritage placed an antiwelfare piece by Murray on the op-ed page of The Wall Street Journal. This sparked a grant from the Olin Foundation that enabled him to work full-time on what became his pathbreaking 1984 book, Losing Ground, even though he hadn’t previously considered turning his research into a book.

to the dismay of liberals, Bill Clinton, a “New Democrat,” later embraced his ideas, calling Murray’s analysis “essentially right” and incorporating many of his prescriptions, including work requirements and the end to aid as an entitlement, in his 1996 welfare reform bill. “It took ten years,” Murray has said, “for Losing Ground to go from being controversial to conventional wisdom.”

Frank argues that “the Tea Party wasn’t subverted,” as some have suggested. “It was born subverted.” Still, he said, “it’s a major accomplishment for sponsors like the Kochs that they’ve turned corporate self-interest into a movement among people on the streets.”

Ground zero in this fight was the James Madison Center for Free Speech, of which Betsy DeVos became a founding board member in 1997. The nonprofit organization’s sole goal was to end all legal restrictions on money in politics. Its honorary chairman was Senator Mitch McConnell, a savvy and prodigious fund-raiser.

He had once opened a college class by writing on the blackboard the three ingredients that he felt were necessary to build a political party: “Money, money, money.” In a Senate debate on proposed campaign-finance restrictions, McConnell reportedly told colleagues, “If we stop this thing, we can control the institution for the next twenty years.”

Another consequence was that the Citizens United decision shifted the balance of power from parties built on broad consensus to individuals who were wealthy and zealous enough to spend millions of dollars from their own funds. By definition, this empowered a tiny, atypical minority of the population. “It unshackled the big money,” David Axelrod contends. “Citizens United unleashed constant negativity, not just toward the president, but toward government generally. Presidents before have been under siege, but now there is no longer the presumption that they are acting in the public interest. There’s a pernicious drumbeat.” After the ruling, he said, “we felt under siege.”

In the previous Congress, the panel had been chaired by Henry Waxman, the liberal Democrat from California who had quarterbacked the House’s successful passage of the cap-and-trade bill, only to see it die in the Senate. Now the new Republican leadership stocked the committee with oil industry advocates, many of whom owed huge campaign debts to the Kochs. Koch Industries PAC was the single largest oil and gas industry donor to members of the panel, outspending even ExxonMobil. It had donated to twenty-two of the committee’s thirty-one Republican members and five of its Democratic members, too. In addition, five out of the six Republican freshmen on the committee had received “outside” support from Americans for Prosperity.

Another defender on the committee was Mike Pompeo, a freshman Republican from Koch Industries’ hometown of Wichita, Kansas, who was so closely entwined with the billionaire brothers that he became known as the “congressman from Koch.” The Kochs had once invested an undisclosed amount of money in an aerospace company that Pompeo founded. By the time he ran for office, the Kochs were no longer investors in his business but had become major backers of his candidacy. Their corporate PAC and Americans for Prosperity also weighed in on his behalf.

Two months into their tenure, Republicans on the House Energy and Commerce Committee also led a crusade against alternative, renewable energy programs. They successfully branded the government’s stimulus support for Solyndra, a California manufacturer of solar panels, and other clean energy firms an Obama scandal. In fact, the loan guarantee program in the Energy Department that extended the controversial financing to the company began under the Bush administration. Contrary to the partisan hype, it actually returned a profit to taxpayers. Moreover, while Solyndra’s investors were portrayed as Obama supporters, among its biggest backers were members of the conservative Walton family, the founders of Walmart.

The demand didn’t materialize out of thin air. For years, some of the Republican Party’s wealthiest backers, including the Kochs and the DeVoses, had been agitating to abolish what were cleverly dubbed “death taxes.” The Kochs joined with sixteen of the other richest families in the country, including the Waltons of Walmart and the Mars candy clan, in financing and coordinating a massive, multiyear campaign to reduce and eventually repeal inheritance taxes. According to one 2006 report, these seventeen families stood to save $71 billion from the tax change, explaining why they willingly spent almost half a billion collectively, lobbying for it, beginning in 1998.

Soon politicians backed by the same conservative donors who funded the think tanks were echoing the “big lie.” Marco Rubio, a rising Republican star from Florida, for instance, who had defeated a moderate in the 2010 Republican Senate primary with the help of forty-nine donors from the June 2010 Koch seminar, soon proclaimed, “This idea—that our problems were caused by a government that was too small—it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies.”

At this point, Neera Tanden believes, the president finally understood what he was up against. “I think he came in truly trying to be post-partisan,” she said. “I think it took the debt ceiling fight to make him see that they hated him more than they wanted to succeed. It was an irrational deal, driven by their funders.” Two and a half years into his presidency, she said, “he finally realized they would rather kill him than save themselves.”

With Ryan declining to run, the Kochs and their operatives searched anxiously for an alternative. Mitt Romney was obviously a serious contender, but they worried that he couldn’t relate well enough to ordinary people to get elected. Polls showed that Romney, who had made a fortune in finance before his stint as governor of Massachusetts, fared dismally when voters were asked if he “cares about people like you.”

The Kochs had recently come up with a new and even cleverer way of masking the money. Rather than simply directing the funds through the maze of secretive nonprofit charities and social welfare groups that they had used during the 2010 campaign, they now established a more efficient method. They pooled much of the cash first in a form of nonprofit corporation that the tax code defined as a 501(c)(6), or a “business league.” The advantage of this umbrella organization, which they named the Association for American Innovation (AAI), was that donations to it could be classified as “membership dues” and to some extent get deducted as business expenses. As with contributions to a 501(c)(4), the law protected the donors’ anonymity. But as a business league, it fell outside the charitable trust purview of state attorneys general, further safeguarding the secrecy.

The picture was far brighter in the key presidential battleground state of Wisconsin. There, the first-term governor, Scott Walker, had vaulted to national stardom by enacting unexpectedly bold anti-union policies. Walker exemplified the new generation of Republicans who had coasted to victory in 2010 on a wave of dark money, ready to implement policies their backers had painstakingly incubated in conservative nonprofits for decades.

Fifteen days after Walker was inaugurated, in January 2011, Hendricks was captured in what she thought was a private chat, urging the governor to go after the unions. Looking glamorous but impatient, the sixty-something widow pressed Walker to turn Wisconsin into a “completely red” “right-to-work” state. Walker assured her that he had a plan. He had kept voters in the dark about it during his campaign, but he confided to Hendricks that his first step was to “deal with collective bargaining for all public employees’ unions.” This, he assured her, would “divide and conquer” the labor movement. Evidently, this was what Hendricks wanted to hear. She had amassed a fortune estimated at $3.6 billion from ABC Supply, the nation’s largest wholesale distributor of roofing, windows, and siding, which she and her late husband, Ken, founded in 1982. Despite her phenomenal success, Hendricks said she was worried that America was becoming “a socialist ideological nation.” Soon after the governor reassured her that he shared her concern, Hendricks and her company began a series of record-setting contributions that would reportedly make her Walker’s biggest financial backer.

Secrecy permeated every level of the operation. One former Koch executive, Ben Pratt, who became the chief operating officer of the voter data bank, Themis, used a quotation from Salvador Dalí on his personal blog that could have served as the enterprise’s motto: “The secret of my influence is that it has always remained secret.”

On its own, in 2012 the Kochs’ network of a few hundred individuals spent at least $407 million, almost all of it anonymously. This was more than John McCain spent on his entire 2008 presidential bid. And it was more than the combined contributions to the two presidential campaigns made by 5,667,658 Americans, whose donations were legally capped at $5,000.

Kochs’ growing clout was evident in a confidential internal Romney campaign memo dated October 4, 2011. Romney, like virtually every ambitious Republican in the country, was angling for David Koch’s support. The memo described him plainly as “the financial engine of the Tea Party,” although it noted that he “denies being directly involved.”

Shortly after the memo was written, Romney took two controversial campaign stances that were guaranteed to please the billionaire brothers. First, he reversed his earlier position on climate change. In his 2010 book, No Apology, Romney had written, “I believe that climate change is occurring—the reduction in the size of global ice caps is hard to ignore. I also believe that human activity is a contributing factor.” When he hit the campaign trail in June of 2011, Romney reiterated this view and stressed that it was “important for us to reduce our emissions of pollutants and greenhouse gases that may well be significant contributors to the climate change and the global warming that you’re seeing.” But at a rally in Manchester, New Hampshire, in late October, he suddenly declared himself a climate change skeptic. “My view is that we don’t know what’s causing climate change on this planet,” he said. “And the idea of spending trillions and trillions of dollars to try to reduce CO2 emissions is not the right course for us,” he declared. By the time he accepted the Republican nomination in Tampa the following summer, Romney treated the notion of acting on climate change as a joke. “President Obama promised to begin to slow the rise of the oceans. And to heal the planet,” he mocked. “My promise is to help you and your family.”

A week after first reversing himself on climate change, Romney skipped a campaign event attended by every other Republican presidential candidate in Iowa in order to speak at Americans for Prosperity’s annual Defending the American Dream summit in Washington. There he delivered a keynote address that could have passed as an audition for David Koch, who was in the audience. Romney had governed Massachusetts as a northeastern moderate, but now he unveiled a budget plan reminiscent of Paul Ryan’s.

If these policy shifts were designed in part to win the Kochs’ support, they succeeded. By July, David Koch not only embraced Romney but threw a $75,000-per-couple fund-raiser for him at his Southampton estate. Romney and Koch were described as exuding a “confident glow” as they and their wives descended the stairs following a private half-hour chat before the other guests arrived. A few weeks later, Romney chose Ryan as his running mate. The pick was opposed by Romney’s campaign consultant, Stuart Stevens, and proved baffling to Obama because of the unpopularity of Ryan’s extreme budget plan. But conservative donors, including David Koch and his wife, Julia, had lobbied for Ryan. It was one more indication that an invisible wealth primary was shaping the discourse and the field long before the rest of the country had the chance to vote.

Contrary to predictions, the Citizens United decision hadn’t triggered a tidal wave of corporate political spending. Instead, it had empowered a few extraordinarily rich individuals with extreme and often self-serving agendas. As the nonpartisan Sunlight Foundation concluded in a postelection analysis, the superrich had become the country’s political gatekeepers. “One ten-thousandth” of America’s population, or “1% of the 1%,” was “shaping the limits of acceptable discourse, one conversation at a time.”

Obama won, but he had few illusions that he had vanquished big money. “I’m an incumbent president who already had this huge network of support all across the country and millions of donors,” he told a few supporters. It had enabled him to, as he put it, “match whatever check the Koch brothers want to write.” But, he warned, “I’m not sure that the next candidate after me is going to be able to compete in that same way.” Messina too was worried. “I think they erred badly with their strategy,” he said. “But I don’t think they’re going to make the same mistake twice.”

Washington, pundits were proclaiming that Obama’s reelection proved the failure of big money, but in North Carolina, Republicans were toasting its triumph at the state level. The REDMAP plan that Ed Gillespie had described at the Kochs’ donor summit eighteen months earlier had worked remarkably well. Republicans had cemented their control of the state legislature and redrawn the boundaries of the congressional districts in North Carolina so artfully that despite getting fewer votes than the Democrats, they had won more congressional seats. The same pattern was repeated in enough other states that the Republicans were able to hold on to the House of Representatives, despite a bigger 2012 turnout nationwide for Democrats. It was a strange anomaly but not an accidental one. For the Koch machine, North Carolina had become something of a test kitchen.

“The Kochs were instrumental in getting the GOP to take over state legislatures,” observed David Axelrod, Obama’s erstwhile political adviser. “The GOP is top-down, but the Kochs had a different plan, which was to organize the grass roots. It’s smart. There’s no equivalent on the Democratic side,” he admitted. “They’re damn good organizers.”

“In previous eras,” Lizza noted, “ideologically extreme minorities could be controlled by party leadership. What’s new about the current House of Representatives is that party discipline has broken down on the Republican side.” Party bosses no longer ruled. Big outside money had failed to buy the 2012 presidential election, but it had nonetheless succeeded in paralyzing the U.S. government.

rather than altering their policies, those in the Koch network, according to Fink, needed a better sales plan. “This is going to sound a little strange,” he admitted, “so you’ll have to bear with me.” But to convince the “middle third” of the donors’ good “intent,” he said, the Koch network needed to reframe the way that it described its political goal. What it needed, he said, was to “launch a movement for well-being.” The improved pitch, he said, would argue that free markets were the path to happiness, while big government led to tyranny and fascism. His reasoning went like this: Government programs caused dependency, which in turn caused psychological depression. Historically, he argued, this led to totalitarianism. The minimum wage, he said, provided a good example. It denied the “opportunity for earned success” to 500,000 Americans who, he estimated, would be willing to work for less than the federal minimum standard of $7.25 per hour. Without jobs, “they’ve lost their meaning in life,” said Fink. This, he warned, had been “a very big part of the recruitment in Germany during the ’20s.” Thus, he argued to an audience that included many of the country’s billionaires, minimum wage laws could be described as leading to the kinds of conditions that caused “the rise and fall of the Third Reich.”

To “earn the respect and good feeling” of those whose support they needed, Fink went on to explain during his talk, the Kochs would also form and publicize partnerships with unlikely allies. This would counteract critics who claimed they were negative or divisive. For instance, he told the donors, they were going to hear about the Kochs’ partnerships with the United Negro College Fund and with the National Association of Criminal Defense Lawyers, the latter of which they had been financially supporting for several years. Later that afternoon, in fact, Fink was joined in another panel discussion, titled “Driving the National Conversation,” with Michael Lomax, president of the United Negro College Fund, along with Norman Reimer, executive director of the National Association of Criminal Defense Lawyers. Fink explained that by reaching across the partisan divide, the Kochs could present their group as offering America “a positive vision.” He said it would demonstrate that “the other side creates divisiveness, but we solve problems.”

If in 2012 the Kochs had rivaled the Republican Party, by 2014 they had in many ways surpassed it. “They’re building a party from outside to take over the party—they’re doing it by market segments—it’s like a business plan,” observed Lisa Graves, the head of the Center for Media and Democracy, a liberal watchdog group that studied the mechanics of political manipulation.

Four years into the Citizens United era, the numbers were more numbing than shocking. The only suspense in each election cycle was the factor by which the spending had multiplied over the previous one. Mark McKinnon, a centrist political consultant who had advised both Republicans and Democrats, declared, “We have reached a tipping point where mega donors completely dominate the landscape.”