Teapot Dome to the Tax Scandals
Before Congress completed its investigations of the Harding
administration scandals, cabinet officers had been found to be
involved in the maladministration or corruption. Secretary of Navy
Edwin Denby resigned from office under a barrage of criticism.
Attorney General Harry M. Daugherty, involved in several questionable
financial transactions, was indicted on a charge of having accepted
a $200,000 payoff in connection with handling of Alien Property
Custodian affairs. Daugherty was acquitted of the criminal charge,
but reports of Congress established him as corrupt and incompetent
in the handling of his office. Secretary of Interior Albert Fall was
convicted of accepting a bribe and sent to prison.
It was in May 1921, within a year of President Harding’s election,
that Secretary of Interior Fall persuaded the President and Navy
Secretary Denby to transfer certain naval oil reserves from the Navy
to the Interior Department. Once he got them within his domain, Fall
then transferred the oil reserves—at Teapot Dome, Wyoming, and Elk
Hills, California—to two private oil producers, Harry Sinclair and
E. L. Doheny. The leases were signed secretly, without competitive
bidding, and Secretary of Interior Fall conveniently tossed them into
a drawer away from public view. He then proceeded to collect $100,000
from Doheny for the Elk Hills transfer, and $300,000 from Sinclair
for the Teapot Dome transfer.
Months later when the Democrats learned of the oil leases they
demanded explanations and alleged, without substantiation, that the
leases might involve some improprieties. Fall and Denby explained
that the transfers to the Interior Department and the leasings were
“in the public interest.”
When President Harding put his personal stamp of approval on the
leasing of the oil reserves, public sentiment turned against the
investigating Democrats. A big, smiling man with an open face that
seemed to project total integrity, Harding easily gave the impression
that all was well with the oil reserve transactions. Although events
later proved that he lacked understanding of the Teapot Dome scandals
as well as many other important matters that took place in his
administration, his reassurances at this stage were readily accepted
by the public and the press.
Nevertheless, the Senate investigating committee persisted. Both
Secretary of Interior Fall and Secretary of Navy Denby were called
to testify. It was essential to question these two high-level
government officials to lay the groundwork for the investigation. It
was essential to explore the conversations between them, as well as
the personal financial transactions between Fall and the Doheny and
Sinclair interests. It was also necessary to explore the opinions and
recommendations of subordinate officials.
Without all of this information, Congress could not have proved the
dishonest use of a government position by Albert Fall. It would
have been naïve to expect that the Justice Department under Harry
Daugherty would have conducted an investigation that was fair and
objective, for Daugherty was already mired in his own corruption.
The Harding scandals should have demonstrated for all time that the
public cannot rely on any administration to police itself. Nor can
it rely on the self-serving declarations of a President, however
well-meaning he may be.
President Harding died on August 2, 1923, a broken and disillusioned
man, still unaware, however, of the full extent of the scandals.
Coolidge’s administration and most of Hoover’s had passed before the
investigations were finally completed, the convictions recorded, the
appeals completed, and Fall imprisoned in 1931.
President Coolidge was faced with a request for a list of the
companies in which his Secretary of Treasury, Andrew Mellon, had an
interest. A special Senate investigating committee was studying the
Bureau of Internal Revenue and wanted to investigate the tax returns
of firms with which Mellon was associated.
President Coolidge said it would be “detrimental to the public
service” to reveal the list of Mellon’s business interests and the
tax returns of those firms. With that, the investigation ended.
Another request for information was similarly nipped by Hoover. The
Senate Foreign Relations Committee had requested that Secretary of
State Henry L. Stimson produce the contents of telegrams and letters
leading up to the London Conference and the London Treaty. The
committee contended it had a special right to such papers because of
the constitutional prerogative of the Senate in the treaty-making
process. Stimson disagreed and President Hoover backed him, arguing
that in order to maintain friendly relations with other nations,
it would be unwise to give the Senate all of the information on
statements leading up to the treaty.
President Franklin D. Roosevelt was favored with a Congress that
was largely on his side in his first two terms, so that there were
no conflicts over information sought by Congress. Indeed, President
Roosevelt preferred having committees of Congress investigate and
dramatize problems in order to facilitate the passage of various New
Deal measures.
Congress did run into opposition to requests for information in
Roosevelt’s third term, however. In 1941 Roosevelt rejected requests
for FBI records and reports, and in 1944 FBI Director J. Edgar Hoover
refused to testify or to give Congress a copy of a presidential
directive requiring him, in the interests of national security, to
refrain from testifying.
The President was backed by a ruling from his Attorney General,
Francis Biddle. In a letter dated January 22, 1944, Biddle claimed
that communications between the President and the heads of
departments were confidential and privileged and not subject to
inquiry by Congress. Another opinion by the Attorney General had
previously supported President Roosevelt in refusing to make records
of the Bureau of the Budget available to Congress.
The Roosevelt administration also used the secrecy routine to hamper
a House investigation of the Federal Communications Commission
(FCC) in 1943 and 1944. The FCC probe involved the basic charge of
political tampering with an independent regulatory agency. There were
indications of improper secret contacts with some commission members
while cases were being decided.
The Roosevelt administration used every political method available to
impede the investigations, including the use of friends in Congress
to harass the investigators. Two men who successively held the title
of general counsel—Eugene L. Garey and John J. Sirica—resigned
in the face of the obstructions and harassment. They charged the
investigation was being turned into a “whitewash.”
The final report of the committee gave the FCC a clean bill of
health. However, the minority report filed by Representative Richard
B. Wigglesworth, Republican of Massachusetts, stated: “It has been
impossible for the committee to conduct anything approaching a
thoroughgoing investigation.”
Congressman Wigglesworth charged that the committee consistently
acted “to suppress indefinitely alleged unsavory facts said to
involve high administration officials and advisers.” He made
reference to the “methods both brutal and shameful” used to force the
original chairman of the investigating committee to resign, and to
the general atmosphere that resulted in the resignations of counsels
Garey and Sirica.
The unhealthy conditions, which the House committee had started
to expose, were left to fester, and fourteen years later the full
effects burst on the American public. The investigations of the House
Legislative Oversight Subcommittee in 1957, 1958, and 1959, which
will be described in a later chapter, disclosed that the successful
blocking of the FCC investigation in 1944 not only allowed bad
practices to continue but thereby encouraged corruption.
Though President Roosevelt had directed the Secretaries of War and
Navy not to deliver some documents which the FCC investigators had
requested, his stated reason was simply that it would “not be in
the public interest.” No broad claims of a constitutional right to
withhold information were ever invoked. There was no need for them
because the cover-up was that ruthless and that effective. Had the
nation not been at war, such a cover-up would likely have caused a
major uproar.
The end of World War II and the election of a Republican Congress
in 1946, however, brought the Democrats to heel. From the time the
Republican Congress took control of the committees, the Truman
administration was in almost constant combat with Congress. The first
disputes involved the efforts of Republican committees of Congress
to obtain access to FBI records and loyalty files. Later disputes
centered on efforts to gain access to records of the Bureau of
Internal Revenue and the Justice Department.
In 1947, the Republicans were intent on demonstrating that the Truman
administration was “coddling Communists.” Investigators sought
access to personnel records and letters dealing with the retention
and promotion of persons who were alleged to be security risks or of
questionable loyalty.
President Truman issued an executive order barring Congress from
access to any of the loyalty or security information in the personnel
files of the government. He said it was to protect the government
employees from abuse by committees of Congress. The unrestrained
activities of some congressional investigators did indeed make the
order seem justifiable to many. However, the Republicans viewed it as
a cover-up.
Representative Richard M. Nixon, later the Vice President,
Representative Charles Halleck, later the Republican leader, and
a dozen other prominent Republicans kept a continuous barrage of
criticism firing at President Truman.
Said Representative Nixon on April 22, 1948:
“I say that this proposition cannot stand from a constitutional
standpoint or on the basis of the merits for this very good reason:
They would mean the President could have arbitrarily issued an
Executive order in the [Bennett] Meyers case, the Teapot Dome
case, or any other case denying the Congress of the United States
information it needed to conduct an investigation of the Executive
department and the Congress would have no right to question his
decision.”
Again, three years later, Representative Halleck was saying on the
House floor:
“His [Truman’s] censorship order gives every agency and department
of the Government the absolute power to decide what information
shall be kept from them. These agency heads are absolute czars unto
themselves. When they order the iron curtain down it stays down—a gag
on the press and radio of the nation.”
Most of this initial criticism was aimed at the rather limited
presidential order which barred Congress from the government
personnel files in the investigations of loyalty and security cases.
Although the Truman administration was reluctant to make records
available when the Republicans began looking into allegations of
improper activities and political favoritism in the Reconstruction
Finance Corporation (RFC), in the Bureau of Internal Revenue, and
in the Justice Department, no blanket order was issued refusing
testimony or records. The allegations were followed first by denials.
Then there was stalling but finally, under the pressure of public
opinion, the records were made available.
What happened specifically was this: Senator John J. Williams, the
Delaware Republican, produced some fairly well documented cases
of favoritism and bungling in the nation’s number one tax agency.
President Truman, Secretary of Treasury John Snyder, and Attorney
General J. Howard McGrath all denied there was any widespread laxity
or corruption in the administration of the federal tax laws. Daniel
Bolich, the Assistant Commissioner of Internal Revenue, and T. Lamar
Caudle, the Assistant Attorney General in charge of the Tax Division,
went before the investigating committees and assured the leaders of
Congress that all was well.
The self-serving declarations of the Truman administration did not
satisfy Senator Williams, however, for they were inconsistent with
many documented facts he held in his possession. A subcommittee of
the House Ways and Means Committee was then established to conduct
a deeper investigation into the handling of tax cases in the Bureau
of Internal Revenue. Later a subcommittee of the House Judiciary
Committee was organized to conduct some further examination of the
way the Justice Department handled tax cases as well as other matters.
Because tax cases were handled by the Bureau of Internal Revenue, a
branch of the Treasury Department, and prosecuted by the Justice
Department, both departments were involved in the investigation.
Tax cases, it was learned, could be fixed in their initial stages
by Internal Revenue agents, or they could be sidetracked at higher
levels in the Bureau of Internal Revenue; they could be rejected
for prosecution by the Justice Department in Washington, or kicked
aside by the United States District Attorney. There were at least a
half-dozen points where a “fix” could take place, and congressional
investigations disclosed that some cases were manipulated at almost
all stages.
When at first the Justice Department files were not made available,
the stalling was recognized for what it was—an effort to hide records
that might be embarrassing. Newspapers quickly pointed out the
cover-up, and Acting Attorney General Philip B. Perlman was forced to
lay down procedural rules for the committees of Congress to use in
requesting access to Justice Department files.
Perlman stated that the Justice Department would not give Congress
access to open cases, but that closed files would be made available.
He also said that FBI reports and similar confidential information
would not be made available. The closed files and the testimony of
high officials were nevertheless sufficient to enable Congress to
document the record of the mishandling of federal tax investigations
and prosecution. Congress extracted testimony from two cabinet
officials—Attorney General J. Howard McGrath and Secretary of
Treasury John Snyder. They revealed their conversations and
communications with their highest subordinates. Records were produced
showing the advice, recommendations, and conclusions of investigators
in the Internal Revenue Service and the staff lawyers in the Justice
Department. It was clear that some of the cases had not been handled
in the normal manner, and that recommendations from subordinate
officials were disregarded at some key points.
Only through this full examination was it possible to prove
that some cases were being “fixed” for money or for political
considerations. Without the full record on the recommendations
from lower officials it would have been impossible to prove that
the mismanagement was due to anything more than “poor judgment” or
negligence.
Neither Attorney General McGrath nor Treasury Secretary Snyder
was shown to be involved in illegal tampering with any tax cases.
However, they had contended that the initial allegations of fraud and
mismanagement were untrue.
The investigations by Congress proved that several high officials
were involved in outright fraud, and a good many more were involved
in gross negligence. The Commissioner of Internal Revenue, the
Assistant Commissioner, and the chief counsel for the Bureau of
Internal Revenue all resigned under fire.
A former Commissioner of Internal Revenue, Joseph Nunan, was
subsequently indicted and convicted on charges of failing to report
large amounts of unexplained income. Assistant Commissioner Daniel
Bolich was indicted and convicted on charges of failing to report
more than $200,000 in income, though the conviction was later upset
by the United States Supreme Court on technical grounds. T. Lamar
Caudle, former Assistant Attorney General, in charge of the Tax
Division, was indicted, convicted, and sent to prison on a criminal
charge arising out of his mishandling of a federal income tax case.
Convicted with Caudle was Matthew Connelly, appointment secretary for
President Truman.
In total, dozens of tax officials were ousted from office for
questionable handling of tax cases, and dozens were indicted and
convicted on charges of cheating on their own tax returns. The
mismanagement and fraud, which the Truman administration had sought
to deny existed, was more widespread and sordid than most of the
critics of the Bureau of Internal Revenue had imagined. The damage to
the integrity of the nation’s tax system was incalculable.
If ever a scandal were needed to prove the necessity of a
congressional review to keep our big federal agencies open and clean,
the Truman tax scandal was it. The success of their investigations
only goaded the Republicans to further probing and policing. In
their party platform of 1952, the Republicans pledged “to put an end
to corruption, to oust the crooks and grafters, to administer tax
laws fairly and impartially, and to restore honest government to the
people.”
When he accepted the party’s nomination in Chicago on July 11, 1952,
General Dwight D. Eisenhower said:
“Our aims—the aim of this Republican crusade—are clear: to sweep from
office an Administration which has fastened on every one of us the
wastefulness, the arrogance and corruption in high places, the heavy
burdens and the anxieties which are the bitter fruit of a party too
long in power.”
“What the Washington mess must have is the full treatment,” Candidate
Eisenhower declared at Atlanta, Ga., on September 2, 1952. “The
only clean-up that will do the job is the wholesale cleanout of the
political bosses in Washington. I pledge you that ... I shall not
rest until the peddlers of privilege and the destroyers of decency
are banished from the nation’s house.”
Two days later at Philadelphia, he spoke of the need for an open,
frank government:
“We must not minimize the difficulties; neither can we seek with
words and dollars to make the going look easy when it is tough. There
will be mistakes, but the mistakes we make will not be doctored
up to look like triumphs. There will be no curtain of evasion, of
suppression, or double talk between ourselves and the people.”
At Des Moines, Iowa, on September 18: “We are going to cast out the
crooks and their cronies.... And when it comes to casting out the
crooks and their cronies, I can promise you that we won’t wait for
congressional prodding and investigations. The prodding this time
will start from the top. And when we are through, the experts in
shady and shoddy government operations will be on their way back to
the shadowy haunts, the sub-cellars of American politics from whence
they came.... The first thing we have to do is get a government that
is honest....”
And at St. Louis, Mo.:
“... we must take the people, themselves, into our confidence and
thereby, restore their confidence in government. We will keep the
people informed because an informed people is the keystone in the
arch of free government.”
The crusade against secrecy and corruption stayed at the forefront of
the campaign and swept Eisenhower and Nixon into office on November
4. When the electoral vote was tallied, it stood 422 Republicans to
89 Democrats—a genuine mandate to clean up “the mess in Washington.”