an income tax. Congress passed a law imposing a tax of 3 per cent on
incomes between $600 and $10,000, and a tax of 5 per cent on incomes
above $10,000. Later, the taxes on those two income brackets were
raised to 5 per cent and 10 per cent.
The income tax collected throughout the struggle--and until the law
expired in 1872--helped carry the nation through its money crisis. Then
the collection of duties by the Customs Service once more became the
country’s primary source of revenue.
But during most of the war and for many years afterward, the venerable
Customs Service’s cloak of respectability was at best a tattered and
stained garment. It had become, particularly in New York City, the
symbol of the political spoils system which had been encouraged by that
partisan old fighter, Andrew Jackson.
The office of the Collector of Customs at the Port of New York had
become a prize second only in political prestige and influence to a
Cabinet appointment. The man receiving this office was in a position to
dole out lucrative jobs to hundreds of the party faithful, to collect
tribute for his party’s campaign chest, and to use his influence in
shaping the affairs of his city, county and state. To a lesser degree,
the same situation existed across the country.
Under such blatantly political management, it was hardly surprising
that the Customs Service in New York should become the target of
bitter charges of graft and corruption. The charges became so loud and
persistent in 1863 that the administration ordered an investigation
into the management of the New York Customs House.
A report from the Treasury’s solicitor said in part: “As to the
accessibility of many of those employed in the Customhouse to corrupt
influences, the evidence is conclusive and startling.... The statements
herewith submitted seem to justify the belief that the entire body
of subordinate officers, in and about the Customhouse, in one way or
another, are in habitual receipt of emoluments from importers or their
agents.... It is shown that a bond clerk, with a salary of $1,000 per
annum, enters upon a term of eight years with nothing, and leaves it
with a fortune of $30,000....”
Until Congress slammed the door on such practices in a reform move
generated in the 1870s, Customs officers were legally permitted to
receive half of any fines and forfeitures resulting from the seizure of
imports which had been undervalued or underweighed by an importer, even
though the methods of determining dutiable value were complicated and
subject to dispute.
However, the law encouraged collectors, appraisers and inspectors to
seek out discrepancies in values and weights and to give themselves the
benefit of any doubt. In one case, the great Phelps, Dodge & Co., metal
importers, was charged with an attempt to evade duties by undervaluing
a shipment worth $1,750,000.
The company’s attorneys argued in vain that there had been no attempt
to defraud the government; that if a mistake had been made it was an
honest error, and that even with the benefit of a doubt, the most that
the government could fairly claim in unpaid duties was $1,600.
With the entire shipment subject to forfeiture, the company finally
agreed to settle for $271,017.23--50 per cent of which was divided
among the Customs officers. Records of the time showed that one of
the Customs officials who received an award of $56,120 was Chester A.
Arthur, who later would become President of the United States.
Arthur was active for years in Republican politics in New York City,
working his way up through the ranks until he became a member of the
New York State Republican Executive Committee. He was rewarded for his
labors in 1871 with an appointment as Collector of Customs in New York
City.
Under Arthur, the Customs House became the center of such open and
partisan political activity that it eventually led to conflict between
Arthur and President Rutherford B. Hayes. Hayes championed a strong
civil service with appointment of Federal employees on a basis of merit
rather than political allegiance. The President asked Arthur to resign,
and when he refused Hayes removed him from office in 1879.
But this Presidential rebuke by no means dimmed Arthur’s political
star. Two years after his removal, he was elected Vice President of
the United States, running with James A. Garfield. Garfield was fatally
wounded by a disgruntled office-seeker, Charles J. Guiteau, only four
months after his inauguration. He died on September 19, 1881, and
Arthur took the oath as President. Ironically, once he was in the White
House, Arthur became a supporter of a stronger civil service.
Reforms came slowly to the Customs Service in the years that followed
the Civil War. But they came, spurred by the efforts of Hayes and then
of President Grover Cleveland to establish a civil service and to break
up a spoils system in which the “rascals” were thrown out of their jobs
with every change in administration.
The demands for further Customs Service reforms were particularly loud
in the early years of the twentieth century. One of these resulted
in the formation in 1909 of the Customs Court of Appeals, to bring
uniformity to the legal decisions governing the huge import trade and
to speed up the hearing of Customs cases.
From the earliest days of the Republic, disputes over the appraising
of imports had been carried to the U.S. Circuit Courts. The result
was a continual conflict in judicial opinions which left importers
and Customs officers confused. In 1908, the Secretary of the Treasury
reported that the law had made “each of at least 120 judges a
possible final judge of Customs appeals, a condition which experience
has demonstrated will inevitably result in numerous irreconcilable
conflicts of authority.”
In addition to the legal conflicts, the U.S. Circuit Courts had become
jammed with Customs cases. It was not unusual for importers to have to
wait almost five years to get a judicial settlement of their cases. But
the creation of the Customs Court of Appeals by the 1909 Tariff Act
removed most of the inequities and brought order out of the judicial
chaos.
In this period, the reformers also centered their attention on the
system which had permitted pork-barrel legislators to have their towns
and cities designated as ports of entry with almost total disregard of
the need for such services.
At Saco, Maine, the port’s receipts for fiscal 1910 amounted to $15,
while expenses totalled $662--a cost of more than $41 to collect $1. At
St. Mary’s, Georgia, the cost of collecting $1 in duties was more than
$45. At Annapolis, Maryland, the government paid $309 to collect $3.09.
And there were dozens of similar examples throughout the country. The
major function of many ports of entry, it was evident, was to give jobs
to the workers in the political vineyard.
Congressional investigators also found that the system of paying
collectors, surveyors and other Customs officials was a fiscal
nightmare--in which thirty-five different methods were used for
compensating employees. For example, collectors along the Canadian
border were permitted to charge ten cents for each entry blank they
executed. Some of them were pocketing, legally, as much as $17,000 a
year.
In 1912, Congress authorized the President to overhaul the Customs
operation. The day before he stepped out of office, President William
Howard Taft issued an executive order establishing 49 Customs
districts to replace the existing 126 districts and 36 independent
ports. Collectors were placed on a salary basis. Many of the political
appointees were dropped from the government payroll.
It was during the early years in this century, too, that the Customs
Service relinquished to the Internal Revenue Service its role as the
prime collector of revenue in the Federal government.
This change was foreshadowed on December 19, 1907, when a tall,
gangling Democratic Congressman from Tennessee arose from his seat in
the House of Representatives in Washington, D. C., and called for the
attention of Speaker Joe Cannon, the thin, wiry political leader who
ruled the House with iron-fisted discipline.
“The gentleman from Tennessee is recognized,” the Speaker intoned dryly.
Then it was that Cordell Hull, a freshman Representative from the
foothills of the Cumberland mountains, boldly introduced a bill calling
for a Federal tax on all incomes. He long had felt that tariff duties
bore too heavily on the consumers of the country and that the wealthy
were not paying a fair share of the cost of their government.
Bold though it was, the Tennessean’s move created scarcely a ripple
in the capital. The House droned on with its business. The newspapers
hardly made mention of the bill or of the new Congressman. It was as
though a rock had been tossed into a lonely mountain pool to sink
rapidly from sight, leaving no trace after the first plop on the quiet
surface.
But Cordell Hull’s action on that cold December day marked the
beginning of a long and bitter fight which would end six years later
with an amendment to the Constitution authorizing Congress to enact
an income tax law. With the passage of this law, the Customs Service
became a secondary producer of Federal revenue.
The reforms of these years, together with those which came in the
Tariff Act of 1922, established Customs on its present base. It was
a leaner and more efficient service which shouldered the increased
burdens imposed by the outbreak of World War I.
During the war years, the Customs Service was responsible for the
enforcement of the neutrality laws in shipping. Its officers acted also
as local agents for the Bureau of War Risk Insurance, insuring vessels,
cargoes and seamen against the hazards of war at sea.
When the United States entered the war on April 6, 1917, Customs
agents moved quickly to seize seventy-nine German and Austrian ships
in American ports. Customs officers enforced the import and export
licenses issued by the War Trade Board.
Two years after the Armistice in 1918, the country was swept by the
nostalgic longing for a “return to normalcy”--and Warren G. Harding was
installed in the White House. But there was nothing normal about the
1920s for the Customs Service. Its agents were to become involved in
fighting the greatest wave of smuggling the nation had known since the
days of Jean Laffite.
6
BOOZE AND BRIBES
Lawrence Fleishman had gone to sea at the age of sixteen, when most
youths his age hadn’t yet put on long pants. He had enlisted in the
Navy and served in convoy duty on the Atlantic in the final months of
World War I. When the armistice was signed between the Allies and
Germany, he had decided to remain in the Navy and he had achieved the
rating of Chief Petty Officer. Still, he had no desire to spend the
rest of his life at sea. When the opportunity had come, he had applied
for a job with the Customs Service. He had been accepted after passing
the Civil Service examinations.
Sodus Point had seemed a quiet enough haven. It was a resort center
and coal shipping port on Lake Ontario, only a few miles removed from
Rochester. The people were friendly and the work was pleasant. He had
expected to remain for some time undisturbed, getting accustomed to the
idea that his roving days were over.
Then an official-looking letter had arrived--marked “Confidential”--and
within a few hours Fleishman was enroute to New York City under orders
to tell no one of his destination. He was to report to Customs Agent
Gregory O’Keefe in Room 501 at the Prince George Hotel.
Fleishman checked into his room at the hotel and then called O’Keefe.
“Come to my room as soon as you can,” O’Keefe said. “We’re waiting for
you.”
When Fleishman went to the room, he was introduced by O’Keefe to a
deputy collector of customs and to another young employee named Frank
Gallagher.
“We called you two down here,” O’Keefe said, “because you are new in
the Service and no one around here knows you--not even the Customs
people.”
O’Keefe explained that the Customs Service was under fire in Congress.
Rep. Fiorello La Guardia had charged that the Port of New York was so
“wide open” that a circus could be smuggled past Customs officers and
New York City port authorities. He claimed that bribery and corruption
were rampant in the administration of the debonair Mayor “Jimmy”
Walker, and that illicit whiskey was pouring into the city. He demanded
that something be done about a scandalous situation.
La Guardia’s charges had stirred Secretary of the Treasury Andrew W.
Mellon to order an immediate inquiry. Customs officials had denied
that conditions were as bad as La Guardia said they were. Nevertheless
O’Keefe was directed by his superiors to undertake an investigation.
Fleishman got the impression in this meeting that the Customs people
honestly believed that an investigation would clear the Service’s
skirts and prove La Guardia to be wrong. Many apparently felt that the
accusations were based more on political inspiration than on facts.
O’Keefe said, “You two are being assigned to the Special Agency
Service. Everything is arranged for you to report for duty day after
tomorrow as Customs guards on the North River piers. When you get your
uniforms, badges, buttons and insignia, I’ll give you more specific
instructions.”
Fleishman and Gallagher were assigned to work as partners on the
piers handling the cargoes of the trans-Atlantic liners. In less than
a week each was accepted as “one of the boys” and they listened to
Customs guards, inspectors, stevedores, seamen and other waterfront
employees openly discussing their success in smuggling liquor and other
merchandise from incoming ships. The standard pay-off for permitting a
case of whiskey to cross the pier unmolested was $1 per bottle.
They sat in on smuggling plans and watched the pay-offs being made.
They accepted their share of the money--and then met in secrecy to mark
the bills to be used as evidence in court. In only eighteen working
days these two alone had gathered evidence of corruption involving
twenty-three Customs and city waterfront employees.
Instead of proving La Guardia wrong, they found that his charges
only touched the surface of a serious breakdown in law enforcement.
They found that many waterfront workers were merely the tools of the
mobsters. Whiskey smuggling was big business and the pay-offs were
tempting to government employees whose average pay in the 1920s was
less than $100 a month. Customs inspectors were earning only $4 a
day and pier guards $75 a month. The Bureau of Labor Statistics had
reported that the minimum salary on which a family could live decently
was $2,260 a year--or $1,124 more than the average government wage.
Forty per cent of the Customs employees in New York worked at night at
whatever they could find to supplement their pay. The conditions were
ripe for corrupting influences to flourish.
One night Fleishman and Gallagher were standing guard at Pier 57 aboard
the French lineship _DeGrasse_. An underworld tipster had reported
that the ship carried 1,500 cases of liquor which were to be smuggled
ashore that evening. As they stood on the stern deck of the ship, a man
dressed as a longshoreman walked up to Gallagher and asked for a light.
Gallagher handed him a match and as the man touched the flame to his
cigarette, the two agents saw well-manicured fingers and the gleam of
a large diamond ring. Then they recognized their visitor as a hoodlum
known as “Mike the Barber.” Whenever there was a waterfront murder at
that time, the name of Mike the Barber was certain to be mentioned
sooner or later in the police list of those to be questioned.
Mike the Barber had said suddenly to Gallagher, “You’re a new man,
aren’t you?”
Gallagher said that he was, and the hoodlum said, “Where do you come
from?”
Gallagher replied, “I’ve been working as a subclerk at the post office
over in Paterson, New Jersey.”
Mike the Barber nodded. “Is that so? I happen to have a good friend
over at Paterson. He is the assistant postmaster over there. You know
his name, don’t you?”
Gallagher was evasive. He began to make excuses for not being able to
recall the assistant postmaster’s name. Mike the Barber growled, “Oh,
yeah? Look, you son-of-a-bitch, you forget everything you see here
tonight or you’re liable to get killed.” And with that the hoodlum
walked off into the darkness.
Fleishman and Gallagher knew their usefulness was over. Within minutes
every member of the gang on the pier would know they were officers.
Fleishman said to Gallagher, “You walk down the pier and walk down
the middle of it--don’t get to the side where there is any cargo or
anything else. Walk right down the middle in clear sight. I’m going
after a taxi.”
Fleishman luckily was able to hail a cab, and he and Gallagher jumped
in. As the cab wheeled from the pier a black sedan roared from the
shadows to give chase. The frightened taxi driver finally shook off
their pursuers and Fleishman and Gallagher returned to their rooming
house.
The information they had gathered was turned over to the Department of
Justice and prosecutions were begun. The crackdown didn’t halt the
smuggling by any means, but it was a jolt to the underworld.
Then, on August 30, 1928, Lawrence Fleishman sat at his desk fingering
a letter which the mailman had left at his office a few minutes
earlier. The letter was postmarked Washington, D. C., and across the
front was written the word “Confidential.”
Slowly he tore open the letter and began reading:
Sir:
You will report at the earliest date possible to Detroit, Michigan.
As soon as you arrive in Detroit, you will register at the Barlum
Hotel.... You are to work strictly undercover and you are to report
to me daily by mail as to your findings.
You will report any dishonesty or irregularity on the part of any
Customs employee, securing wherever possible such evidence as is
obtainable....
(Signed) _Elmer J. Lewis_
Fleishman tossed the letter onto his desk and felt the excitement
building up inside. The order really came as no great surprise,
although he knew that it would be something of a shock for his wife
to learn they were leaving immediately for Detroit. Their plans for
the future hadn’t included any sudden, mysterious journeys to a city
neither of them had ever visited before.
Fleishman knew the assignment would be dangerous. Yet he saw no reason
why he shouldn’t take his bride along. He could rent an apartment and
the stay in Detroit could be pleasant for both of them as long as
business was separated from their home life.
This wasn’t an era for Fleishman or anyone else to be surprised over
reports of graft and corruption in law enforcement. The papers were
full of stories of prohibition agents and other officers being involved
with gangsters in liquor smuggling. If Congress wasn’t ordering
an investigation of a breakdown in law enforcement, others were.
Bootlegging and racketeering had grown to be a multi-million-dollar
industry. It was hardly surprising that an underpaid police officer was
tempted when he could make $100 merely by looking the other way while a
cargo of liquor was being unloaded.
There were times when Fleishman and his fellow agents were not
proud of their agency. But the Customs Service was by no means the
only enforcement agency tainted by crooks and weaklings. There was
corruption rampant throughout the United States. The Federal government
itself was only beginning to recover from the shocking scandals in
the administration of President Harding. It was all a part of the
revolution in manners and morals which had swept the country after the
close of World War I. It seemed after the war that the vast majority of
the citizens of the United States were eager for prohibition. Congress
had voted overwhelmingly for the Nineteenth Amendment to establish
prohibition throughout the United States. The dry forces had easily won
ratification of the amendment when it was placed before the various
states.
Then came the revolt. As soon as Congress passed the Volstead Act, to
enforce the prohibition amendment, the country developed a prodigious
thirst. Bootlegging became one of the country’s major industries.
Revenue from the sale of illegal whiskey provided mobsters with
unbelievably rich treasuries. It made millionaires out of bums. The
gangsters were better armed, better disciplined, and better organized
than the average law enforcement agency throughout the country. The
cynicism of the period was summed up by Franklin P. Adams, who wrote in
the New York _World_:
Prohibition is an awful flop.
We like it.
It can’t stop what it’s meant to stop.
We like it.
It’s left a trail of graft and slime,
It’s filled our land with vice and crime.
It don’t prohibit worth a dime,
Nevertheless we’re for it.
In Chicago, the pudgy gangster named Al Capone fashioned a crime
empire from the profits made on smuggled booze, prostitution and other
rackets. At one time he and his mob controlled--literally--the city of
Cicero outside of Chicago. They elected its officials, controlled the
appointment of police officers, and dictated the affairs of the entire
community, with the threat of the Thompson submachine gun to enforce
their rulings. City governments--and even the Federal government at
times--seemed powerless to cope with the marauders.
In Detroit the Purple Gang came to power, and among the major hoodlums
was a man named Pete Licovoli, whose name usually cropped up whenever
there was a gangland murder, violence, or a report of widespread
corruption. He was a man whom Lawrence Fleishman would get to know well.
This was the state of affairs in September, 1928, when Fleishman and
his wife loaded their belongings into their shiny new Model A Ford
sedan and set out for Detroit.
On arriving in Detroit, they registered at the Barlum Hotel as
Supervising Agent Elmer Lewis had instructed. The following morning
Fleishman went to Lewis’ room in the hotel to be briefed on his
mission. He was eager to meet Lewis, who was one of the Bureau’s
veteran agents with a reputation for being tough, honest and efficient.
Lewis answered Fleishman’s knock on his door. He took Fleishman’s
hand and Fleishman felt like a schoolboy as he looked at the big,
broad-shouldered, sandy-haired man who towered above him. Lewis was 6
feet 4 inches of bone and muscle.
Lewis introduced Fleishman to Sumner C. Sleeper, the chief of the
Detroit Customs Patrol. He was a man of medium height who had spent
many years in the Service. The glasses he wore gave him the look of a
schoolteacher.
Quickly Lewis got down to business and sketched the assignment
Fleishman was to undertake: There were rumors, true beyond doubt,
that some members of the Customs Patrol were deeply involved with
the gangsters in smuggling whiskey into Detroit. The situation had
reached the point where something had to be done to check the bribery
and corruption, but there could be no effective prosecution until the
Bureau had solid evidence that bribes were being offered and accepted.
Lewis explained that arrangements had been made for Fleishman to join
the Patrol as a rookie. If offered bribes, he was to accept them and
make a record of the serial numbers of the bills. He was to report
daily in writing to Lewis, detailing everything that happened, along
with the names of those involved in any wrongdoing. Only four men knew
of his assignment--and he was to discuss his activities only with
them. The four were Lewis, Sleeper and two assistant collectors.
“We hope,” Lewis said, “that within three months you can get enough
evidence to break this thing wide open.”
It was agreed that as a “cover” Fleishman would tell anyone who was
curious that after leaving the Navy he had found a job as bookkeeper
for a large New York State gambling syndicate but the syndicate had
been broken up by police, forcing him to find another job. The story
sounded reasonable enough, because the newspapers had carried stories
that summer of a big gambling combine which had been smashed by New
York State police.
At the close of the conference, Lewis gave Fleishman a final bit of
advice: “If you ever think they are suspicious of you, get to a safe
place fast--and call me.”