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TABLE OF CONTENTS

Introduction ...... 5

Foreword ...... 7 Profdes ...... 9

History of the Intelligence Unit, 1919-1936

Organization and Functions of the Intelligence Unit ...... 23 Tax F:vasion Investigations ...... 27

Dishonest Public Officials Pmsccuted as Tax Evaders ...... 28

Leading Sent to Penitentiary 33

Motion Picture Stars Investigated- Several Million Dollars Collected 447

TzEvasion Cases Involving Prominent Individuals and Businesa Concerns 48

Women Tax Evaders Involvcd in Outstanding Fraud Cases ...... 55

Aliens Seek to Evade Taxes - Treasury Recovers Many Millions in This Class of Tax Dodging ...... 57

Investigations of Offen in Compromise Result in Detecting Concealment of Assets 59

Miscellaneous Tax Investigations ...... 61

Record of Investigations of Revenue Personnel, Tax Accountantsand Enrolled Agents ...... 62

Indirect Results of Investigations - Fear of Prnalties and Punishment Deter Luge Classes From Rwenue Law Violations ...... 82

Results During Present Administration ...... 87 ~. . Procedure in Disposition of Tax Fraud Cases ...... 90 Money Laundering - Title 31 ...... 172

Statistical Summary 3 Investigative Efforts and Results

History of lhe Criminal Investigation Function, 1936-1994

Organizational and Operational Highlights Return Preparers Project &neA 9 Questionable Refund Program ...... 180 9 The Late Thirties and the Forties Abusive Tax Protester Program 81 Cases of the Late Thirties and the Forties ...... 100 Illegal Tax Protester Program 83 Business Opportunities Project ...... 184 of Cases the Fiftie Tax Haven - Offshore Bank Project ...... 185

Nonliler Pmgram ,187

Cases of the Sixlies Motor Fuel Excise Tax Program 188

Bankruptcy Fraud Program

Cases of the Seventie International Initiative

Investigative Tuols and Techniques . . casesof the ~i~hti~...... 136 Undercover Actiwtles 192

The Ninetie 143 C1 Forensic Laboratory ...... 193 Cases of the Nineties 144 ...... Use of Grand Juries ...... 195 Investigative Projects 68 Criminal Investigation Badge ...... 1% Wagering Tax Enforcement 68 Training ...... 197 Drive -Strike Force Program 170 ...... Statistical Data .... 20Q

I

FOR OFFICIAL USE OWLY INTRODUCTION

his document is dedicated la those seem to be in a constant mode of change. Internal Revenue Service special agents Whether it's a change in the laws that refo- T and Criminal Investigation employees, cus our enforcement priorities, a change in past and present, whose devotion to duty orgmiaational structure that revitdizes our created this noteworthy record of achieve- mission, or internal implementation of a ment. Your achievements are not only evi- new concept that revolutionizes the way we denced in the following pages -they are work - change is what has always kept also prominently imprinted on the pages Criminal Investigation on the cutting edge of history. of law enforcement, management tech- As our arganizatiun has grown in stature niques and technology. fmm a mere six special agents at its Our history of change, accomplishments, inception in 1919 to aver 3,200 today, we and new challenges brings us to 1994 - have also developed into an organization our 75th anniversary ns a law enforcement known for its diversity of expertise. Yet we orpuzation. As always, we an prepad for continue to accomplish our mission and and look forward to change - to impmve- solve crimes in a way that no others can; ment - to effective law enforcement. we follow the money that ultimately leads Indeed, during the past 75 years, much has to the criminal. been accomplished. However there is still Federal prosecutors continue to seek much that can and must be dome. the expertise of IRS special agents as a It is our job to continue the 75year tradi- critical asset to any investigative team. tion of pmfessiondism, dedication and com- The training and expertise as well as the mitment. It is not a dimcult challenge, unique financial investigative skills con- because the majurity of men and women tinue to make the IRS special agent a nec- in C~iminalInvestigation have that same essary clement in every investigation level of commitment and pride that Elmer involving the flow of money. Irey envisioned for IRS special agents 75 Our investigations irrvolve individuds yeam ago. from all segments of our society, from the 1 am confident thal Criminal Investi- high-level drug traffickers and financiers to gation will continue to meet the challenges individuals who appear to be pillars of the of the future with the same enthusiasm and community, docton, lawyers, accountants, skill that has inspired our special agents legislators and corporate executives. for the past 75 years. And the future will Therefore, investigations vary from the very demonstrate the commitment of this organi- dangerous to the very sensitive with each aatiun to slrong enforcement a1 the tax laws investigation requiring il high degree of and support far the overall efforts to cam- sensitivity, discretion and &we-all fairness. bat financial crimes wherever they occu. One of the most fascinating aspects of IRS Criminal Investigation is that we Donald K. Vogel FOREWORD

his document has several segments. of this task represents one uf the nation's The first segment profiles, through pho- most important law enforcement jobs T tographs and biogaphical data, each of because of the importance of the tax those honored to serve as the head uf the system to the pmper functioning of the Criminal Investigation function since its Government. The successful prosection of formation in 1919. tax evaders not only serves to protect the The second segment is a verbatim pubic revenue, but also warns potential tax reprint of the only remaining copy of a evaders that they cannot defeat the system document issued in the mid-1930's that of voluntary compliance. Over the years, portrays the history of the Intelligence investigative activity has resulted in indi- Unit from 1919 tu 1936. It describes the viduals being convicted for tax evasion in Unit's early organization and functions. almost every occupation, profession, and It illso contains summaries of cases, segment of thc economy. In addition, the including several that contributed to our ability of Criminal Investigation to use enduring reputation as "the giant killers." criminal sanctions for lax riolations The next segment is a sequel covering against otherwise untouchable criminals mid-1936 to 1994. It outlines, decade by continues to be a powerful weapon in the decade, significant organizational and light against organized crime. operational highlights during those 51 This historical record is primarily abut years, and summarizes cases and projects activities of the Criminal Investigation representative of our activities and accam- function. However, we gratefully acknowl- plishments. The sequel is an overview edge the invaluable contributions of the rather than an exhaustive study. other IRS components, particularly the The primary purpose of the Internal Examination and Collection functions, Revenue Service is, of course, the collec- our partners in many of these endeavors. tion of taxes in a fair and impartial man- Similarly, we gatefully acknowledge nel: Achieving the highest possible degree the important roles played by the Office of voluntary compliance with the internal of Chief Counsel and the Department revenue laws is an important goal toward of Justice. that end. Criminal Investigation's support

FOR OFF1TIAl USE ONLY 1 PROFILES I I 1 Presented below are brief biographical

t sketches of the sixteen individuals i pr~vilegedto serve as the principal I I executive of the IRS Criminal I Donald K. Vogel I Investigation function since its Fe6rmry 28, 1993-Presenl

1 incept~onon July 1, 1919 Donald K. Vogel earned a bachelor's degree in business administration with a major in accounting from Creighton University in Omaha, Nebraska. He is a native of Sigourney, Iowa. He entered federal Service in 1965 with the Department of the Army. In 1971 he joined the 1RS as a special agent in the Criminal Investigation Division in Omaha, Nebraska. He held various positions in Criminal Investigation including gmup manager in San Antonio, Texas; Branch Chief in Austin, Texas; Assistant Division Chief in St. Louis and Executive Assistant to the Assistant Regional Commissioner in Southwest Region. After completing the 1RS Executive Selection and Development Pmgram in 1987, he became Assistant Director of the St. Paul District. In 1988, he was named Assistant Regional Comrnisaioner for Criminal Investigation in Midwest Region. He was selected as Assistant Commis- sioner (Criminal investigation) in February 1993. I I FOR OFFICIAL USE ONLY lnar "SmiW" Morics Bruce V. Milburn Anthony V. Langone Richard C. Wassenaar December 3, 1989- January 10, 1993 May 8,1988-October 20, 1989 Febmary 2, 1987-April3, 1988 March 21, 1982-December 12, 1986

Inar "Smitty" Morics is a native of Bruce Milburn earned a bachelor's degree Anthony V Langone is a native of Richard C. Wassen- was born on April Liepaja, Latvia; He holds a bachelor's in accounting and business from Union , . He received a 27, 1939, in Worthington, Minnesota. He degree from Northwestern University in College in Barbourville, . He is bachelor's degree in economics from received a B.S. degree from Elmhurst Evanston, Illinois. a native of Point Pleasant, . Brooklyn College. He began his IRS College, Elmhurst, IUinois, in 1963 and In 1962, Morics began his IRS career He hegan his IRS career in 1969 as a career in 1961 as a special agent in the studied law at DePaul University. Mr. as a criminal investigator in . special agent in Cincinnati. He served in Intelligence Division in Brooklyn. He Wassenw began his Government career He transferred to the National Office in Washington and Atlanta hefore becoming a held a series of management positions in in 1963 as e special agent in Chicago. Washington in 1970 where he held several supervisory criminal investigator in 1974, the Intelligence Division in the Washington, In 1971, he became Assistant Chief, management positions in the Criminal in Birmingham, Alabama. He became a D.C. area, and San Francisco. In Intelligence Division in the Investigation function. He became Chief program analyst in Cincinnati in 1976, 1975, he was named Assistant Regional District. He completed the Executive of the Criminal Investigation Division in was prnmoted to Assistant Chief of the Commissioner (Intelligence) for the Development Program in 1973, was the St. Paul District in 1976. Criminal Investigation Division in Detroit Southeast Region, and in 1978, he was named Assistant District Director in In March of 1987, he completed the in 1977, and appointed Division Chief in chosen fur the Executive Development Seattle, and in 1975, became Assistant 1RS Executive Selection and Develop- New Orleans in 1981. He served as Divi- Program. In 1981, Mr. Langone was Regional Commissioner (Intelligence), ment Program. In October 1987, he sion Chidin Detroit in 1982, and was named Assistant District Director in Western Region. In Mmh 1982, Mr. was selected as Assistant Regional appointed Assistant Regional Commis- Jacksonville, . In April 1986, he Wassenax was appointed Assistant Commissioner (Criminal Investigation), sioncr in North Atlantic Region in 1983. hecame the Deputy Assistant Commissioner (Criminal Investigation), Central Region. He was appointed Upon completing the IRS Executive Commissioner (Criminal Investigation), the position he held until his death on Assistant Commissioner (Criminal Selection and Development Program in the position he held untilhis selection, Decemher 12, 1986. Investigation) December 3, 1989. In 1987, he was named Assistant Director of an Fehmary 2, 1987, as Assistant 1993, he hecame the District Director the Newark (New Jersey) District. In 1988, Commissioner (Criminal Investigation). in St. Paul, Minnesota. he was selected as Assistant Commissioner (Criminal Investigation), the position he held until his retirement.

FOR OFFICIAL USE ONLV FOR OFFICIAL USE ONLY Thomas J. Clancy John J. Olszewski Robert K. Lund William A. Kolar July 6, 1975-March 20, 1982 September 3, 1972-May 9, 1975 October 4, 1Y7GJune 30, 1972 December 31, 1965-Jme 13, 1970

Thanras I. Clancy was horn an November John I. Olszewski was bum on December Hobert K. Lund was born in Startup, William A. Kolar was Lorn in Baltimore, 6,1932, in Independence, Kansas. He 12, 1923, in Detroit, Michigan. He Washington, and graduated in 1941 from Maryland. He attended Washington received a B.S. deme from Wichita State received a B.S. degree in 1949, and a doc- the University af Washington in Seattle. College in Chestertown, Miuyland and University in 1954, and became a special tor of jurisprudence degree in 1955, both He entered Guvernrnent Service in 1941 received an LL.B. degree from the agent in Wichita in 1957. In 1970, he was from the University of Detroit. In 1952, as an investigator in Treasury's Foreign University of Baltimore in 1943. Mr. Kolar narned Chief, Intelligence Division in Mr. Olszewski became a special agent in Funds Control Unit. He began his Internal was an FBI agent from 1943-1951. He the Omaha Distlict and, in 1971, was Detmit and, in 1961, he was named Revenue career in 1944 as a special agent later served as Chief Investigator for the appointed ataffaseistaot to the Director, Chief, Intelligence Division in the Detroit in San Francisco. In 1952, Mr. Lund was Senate Judiciary Subcommittee on lntelligence Division. In 1973, he entered District. In 1970, Mr. Olsaweski was pro- named Asbititant Chief, Intelligence "Trading with the Enemy Act." In 1954, the Executive Development Program moted to Assistant Regional Commissioner Division in the San Francisco Diavict and, he joined the IRS as a special assistant and was later selected as the Assistant (Intelligence), Midwest Region, the posi- in 1957, was promoted to Chief in the to the Director of the Internal Security Regional Conunissioner (Intelligence), tion he held until his selection as Director, Lus Angeles District. In 1967, Mr. Lund Division. In 1960, Mr. Kolar was named Mid-Atlantic Region. In July 1975, Mr. Intelligence Division in Septemher 1972. became the Assistant Director of the Direclor of the Internal Security Division Clancy hecame Director, Intelligence Mr. Olszewski retired from the Service in Intelligence Division, the position he held and held that position until his selection Division (which was renamed Criminal 1975. until his selection as Director in 1970. as Director of the Intelligence Division in Investigation Division in 1978). He held Mr. Lund retired from the Service in June December 1965. He served in that capac- that position until his selection as the 1972. ity until his retirement fmm the Service im Director, Foreign Operations District in June 1970. 1982. Mr. Clancy mired frum the Service in 1986.

FOR OFFICIAL USE ONLY i FOR OFFICIAL USE ONLY I A. Walter Fleming Garland H. Williams H. Alan Long J. Perry August December 20,1953-August 15,1955 Janmr3.1, 1953-Augwt 31, 1953 June 30,1959-December 31, 1965 October 18, 1955-June 30, 1959 1 H. Alan Long was born in Burlington, J. Peny August was horn in Dorchester, A. Walter Fleming entered Internal Garland H. Williams was horn in Prentiss, Coloradu; and, in 1927, graduated from Nebraska, in 1909, and graduated from Revenue in 1923 as a special agent and Mississippi on January 5, 1903. He the University of Colorado. He entered the the University of Wyoming. He entered advanced to Special Agent in Charge of received a degrce in engineering fmm the Univemity of Mississippi. In 1929, Mr. Government in 1940, as a special agent in government service in 1934 with the various posts of duty. He later served as Regional Commissioner at Bdfalo and Williams became an agent in the Bureau Denver. In 1950, Mr. Long, a certified pub- Bureau of Reclamation in Denve~ of Customs and, in 1936, he transferred to lic accountant, became a member uf the Colorado, transferring three years lam to Dallas. In December 1953, he was made Director, Intelligence Division. held the Bureau of Narcotics. Mr. Williams dis- Appellate Staff in and the Bureau of Internal Revenue as a spe- He tinguished himself in the US. Anny upon remained there until his appointment in cial agent in the Denver Office. Mr. Peny that position until August 1955, when he being recalled during World War 11. One 1956, as the District Director in Chicago. was named Special Agent in Charge of the was appointed Regional Commissioner in of his achievements was organizing and In June 1959, he became Director of the Denver Office in Mmh 1952, and became New Yark. Intelligence Division. Mr. Long held that the Assistant Regional Commissioner becoming the firat chief of the Counter- war, position until December 1965, when he (Intelligence) of he Dallas Region on Intelligence Corps. After the Mr. was named District Director in Pittsburgh. July 1, 1953. He was the Director of the Williams returned to the Bureau of Nar- Intelligence Division from October 1955 cotics and later was recalled to active mili- January to June 1959, when he retired from the tary duty far two more years. On Service. He died an June 12, 1984. 1, 1953, he became Director of the Intelligence Division. He served in the position until August 1953.

FOR OFFICIIL USE ONLV FOR OFFICIAL USE DNLV Frank W. Lohn William H. Wool1 Elmer L hey Januav 20, 1952-N~vember25,1952 January 26, 1943-December 31, 1951 July 1, 1919-January 26, 1943

Frank W. V.Lo was horn on March 2, William H. ("Harry") Wodf was horn Elmer Lincoln hey was born in Kansas 1898, in hhn, Texas, and studied at West in Alderson, West Virginia, on May 8, City, Missouri, on March 10,1888. He Texas State College. He was a high school 1886. He graduated from high school in graduated from high school in Washington, superintendent for four yeus and served Washington, D.C., and received an LL.B. D.C., and attended Georgetown Law in the Artillery in World War 1. Mr. Lahn degree frum Georgetown University Law School. Mr. Irey was a 31-ye= old Post became an Intelligence special agent in School. On October 6, 1919, Mr. Wuolf Office Inspector in Lynchburg, Virginia, Dallas in February 1927. He held several transferred Lom the Office of the Chief when in 1919 he was named Chief of the Intelligence held positions, ineluding Post Office Inspector to become Assistant newly created Special Intelligence Unit of Special Agent in Charge of the Seattle and Chief of Internal Revenue's Special Intel- the Bureau of Internal Revenue. Beginning the Kansas City Offices. In January 1952, ligence Unit. He was promoted to Chief of in 1937, Mr. Irey also served as chief cow Mr. Lahn became head of the Intelligence the Intelligence Unit in 1943, and served dinator of all Treasury law enforcement function and, an August 11, 1952, he in that position until 1951. Mr. Woolf agencies. These included the Secret Ser- became Director of the reorganized Intel- remained on as special advisor to the new vice, Customs, Foreign Funds Contml. ligence Division. In November 1952, Mr. head of the Intelligence function, and Narcotics, Alcohol Tax and Intelligence. Lahn was named District Commissioner retired from Internal Revenue in 1952. In 1943, Mr. hey was relieved of his of the Denver Region. responsibility as Chief of the Intelligence Unit sa he could devote full time to coardi- nating Treasury Enforcement activities. Mr. lrey retired fmm the Government in 1946. He died an July 19, 1948.

FOR 06FICIAL USE ONLV FOR OFFICIAL USE ONLY The followin8 Lg a overbatin reprint of the only copy of a bound document in the Criminal h~aesti~ationhistoricalfiles rnaimained in Wahington D.C.

HISTORY OF THE INTELLIGENCE UNIT July 1. 1919-June 30, 1936

hen engaged in common endeavor, criminal violations of the revenue laws a group, no less than an individual, and the fitness of personnel already in the needs occasionally, for the good of its Service or those who aspire to enter it. soul and in the interest of its efficiency, to Generally speaking, none of the investiga- review and appraise its origin, its objec- tions conducted by the Unit are initiated. tives, and its progress and development. They are made upon special direction of This is the main lhought that prompted the Secretary or the Commissioner or upon (be writings of the pages that follow. request of an administrative officer directly Such occasional self-examinations have responsible for the subject matter to long been the policy of the Intelligence which the proposed investigation relates. Unit. They have definitely contributed to As the pages to follow will disclose, the Unit's effectiveness. Successful results the Unit investigations almost invariably thus examined in retrospect have brought involve questiom directly affecting the pardonable pride and satisfaction to the character and fate of human beings. personnel. Unsuccessful and ineffective Investigation of the fitness of a candidate efforts have not been wholly without value; for entrance into the Service will discover they have demonstrated the "ways not to facts lhat may disbar him from the do it" - the policies and methods to avoid. appointment he seeks. An officer or On this occasion the opportunity has employee of the Service, suspected of mis- been seized to reduce the review to writing conduct, may be removed - even indicted and embody in it a brief "life sketch" of and - upon the facts which the Unit and its work. This permanent the Unit must ascertain. The individual record will be supplemented each year citizen or corporation officer, suspected of with a summary of the Unit's activities. tax evasion or bribe giving. may wind up The Intelligence Unit, as a distinctive in jail as a result of the Unit's investiga- division of work in the Internal Revenue tion. It is, therefore, obvious that the Service, was created 17 years ago. Its cre- nature of its work demands skill, tact, dis- ation was deemed essential in the organi- cretion, energy and determination in no ration of the Service to administer properly ordinary degree if the government's inter- the vastly extended field of Federal taxa- ests are to be pmperly protected on the tion which followed upon the enuance of one hand end injustice and irreparable the into the World War. injury to innocent suspects avoided on the The work of the Unit is distinctive in other. Although this work is indispensable that it is exclusively investigative and to the administration of the revenue laws, relates mainly to alleged or suspected the men engaged in its performance have no enviable task. The pages which follow contain an epit- The record of the Intelligence Unit is them to appear superficial. But what they ome of the Unit's 17 years of experience. merely the composite result achieved by may lack must be attributed to an inability Its principal functions and activities are its special agents. Individual records, as to express in words and understanding, an described and typical cases are used to well as the fine spirit of team work dis- appreciation, and a purpose that have been illustrate the varied nature of the work played hy these men, would make an inter- indelibly impressed by 17 years of active performed by its special agents. These esting story alone. In this review, their work in a great service. cases, by their sharply contrasted patterns, individual performances must be reflected And rhe writing of this introduction has reflect many of the tricks and artful impersonally against the nffirial hack- been good far his soul and in the interest devises of the tax dodger. They also indi- ground. of his efficiency, he believes. cate that whatever the guise or methud he It has been the good fortune of the Elmer L. hey may use, the man who seeks to cheat his present Chief of the lntelligence Unit to Chief, Intelligence Unit Governlent rides eventually to a fall. occupy this position since the Unit was Tax dodgers are found in all walks of life created in 1919. Whether this has con- -bankers, racketeers, bootleggers, man- tributed tu the Unit's efficiency or ufacturers, gamblers, judges, legislators, detracted from it may easily he ques- beer humns, senators, police chiefs, public tioned, but at least it has afforded a rare officials, movie stars and magnates, stock and ample opportunity far the present prnnroters, and conspiring tax accountants Head to appraise the services of his asso- and lawyers. All of these groups and others ciates in the Unit and of his fellow officers have contributed tu the array of tax crimi- and employees in the Bureau and Service nals who have been penalized for their at large. The fact that the successive wrongdoing. Special agents of the Department and Bureau heads have felt Intelligence Unit have encountered tax justified in continuing the Unit as a spe- evaders in all degrees of social station, cial division of work and permitting the official prominence and business affluence. present Chief to continue responsibility for The record will show that eminence of sta- its supervision, may be attributed solely to tion is neither a warrant of honesty nor a two things. The first is the individual shield to protect the wrongdoer. efficiency of the special agents, their unex- The vast majority of taxpayers are hon- celled team work, and their fine loyalty to est, of course, and they are entitled to the Service. The second is hesympathetic know that when dishonesty is suspected and wholehearted cuoperation and support that trail will be followed to its logical end. of the successive Secretaies and Commis- This is the special field to which the sioners, their deputies, collecrors of inter- Intelligence Unit is called in the perfor- nal revenue, agents in charge, and mance of its duties. Facts alone can estab- practically all members of the Revenue lish whether suspicion is justified. Bath in Service organization with which the discovering the facts and weighmg them, Intelligence Unit has heen in contact. fairness and impartiality must govern In writing these introductory abserva- every step. tians, the Chief of the Unit has been con- stantly aware that limits of space and time rather than depth of sentiment may cause

FOR DFFlClAl USE ONLY I FOR OFFICIAL USE ONLV

1 Organization and Functions This Act imposed the highest rates of taxation that had ever been known in the of the lntelliaence Unit history of this cauntty. The surtax rate of 1% on incomes of more than $20,000, The principal income of the Federal Gov- and a maximum of 6%. as provided in ernment, before the enactment of the the 1913 Act, was increased tu 1% on net Sixteenth Amendment to the Constitution incomes of $5,000 and the rate was gradu- of ihe United States on February 25, 1913, ated up to a maximum rate of 63%. consisted of customs duties and excise or It is worthy of note that internal revenue indirect taxes. collections increased from $344,424,454 for The first income tax law under this the fiscal year ended June 30, 1913, to Amendment, the Revenue Act of 1913, $5,407,580,252 for the fiscal year ended was enacted by Congress on October 3, June 30, 1920, the largest an~ountof col- 1913. It became effective March 1, 1913. lections up to that time. A normal tax of 1% an the net incomes of The growth of the Bureau of Internal individuals, estates, uusts and copora- Revenue from the inception of the income tions was imposed. The su~iaxrate was tax law in 1913 up to June 30, 1919, was graduated from 1% to 6% applicable to rapid. The pemunnel of the Bureau had incomes in excess of $20,000. increased from a total of 4,000 employees The Revenue Act of 1916 practically on June 30,1913, to 14,055 on June 30, doubled the normal rates specified in the 1919. 1913 Act to provide for the increased The 1917 Revenue Act made it neces- Federal expenditures; and, the surtax rates sary to increase quickly the number of were incresed, running from I% on employees. By 1919 many serious com- incomes of $20,000 to 13% on incomes plaints were reaching Commissioner of of $2,000,000 or over. Intend Revenue Daniel C. Roper, then When the United States entered the Secrekq of Commerce, relative to alleged World War on April 6, 1917, it was appar- tax frauds and charges of irregularities ent from knowledge of the expenditures involving employees of the Internal of other countries engaged in the war that Revenue Service. this country would be obliged to assist Before Mr. Roper's appointment as these countries financially and that Con- Commissioner of Internal Revenue, he had gress would have to raise enormous rev- been First Assistant Postmaster General enue. and was familiar with the activities of the As a result, the income tax rates were Post Office Inspectan. He regarded their increased and excess profits tax feature service as a most important factor in the was added to the law as provided by the investigation and suppression of fraud in Revenue Act of 1917, enacted October 3, the use of the mails and irregularities or 1917, which was retroactively effective dishonesty among the personnel of the January 1, 1917. Post Office Department.

FOR OFFICIAL USE Dlll Scope of Activities Responsibility of Special Agents tial investigation of charges or recom- Since its organization the duties of the mends removal or criminal prosecution of Intelligence Unit have been increased to Commissioner Roper decided to create an The special agents have great responsibil- an employee, based upon an improper or include: Intelligence Unit lo perform similar func- ity in making recommendations as to erroneous interpretation of the evidence, 1. Investigation of applicants for positions tions for the Bureau of Internal Revenue. the action to be taken in cases which fre- the entire liie of the employee may be in the Bureau of Internal Revenue and He, therefore, with the approval of the quen~lyinvolve tax liabilities of millions ruined by the unjust charges. Many of the in various branches of the Treasury Secretary of the Treasury and the Post- of dollars. personnel investigations concern those Department. master General, on July'l, 1919, effected Their duties include these major steps: civil service employees to whom the gov- 2. Investigation of applications uf attor- the transfers from the Post Office Inspec- 1. Recommendation with regard to the ernment service is their life career. neys and accountants for permission to tion Service of six experienced Post Office assessment of fraud penalties, in addi- Realizing this grave responsibility, all practice before the Treasury Inspectors to the Bureau of Internal tion to the taxes recommended by rev- reports of investigations are carefully Lkpartment in representing taxpayers. Revenue. enue agents. reviewed by the supewisoly officials of the 3. Investigation of charges of a criminal Elmer L. lrey was designated as Chief, 2. Request in certain cases that jeopardy Intelligence Unit. They make certain that and unetlucal nature against enmlled Intelligence Unit, and shortly thereher, assessments he made. the investigation has been complete and attorneys and accountants. W. H. Woolf, also connected with the 3. Recommendation for the filing of liens that the recommendation is a logical con- 4. Special investigations directed by the Office of the Chief Post Office Inspector, on taxpayers' property in order to clusion as to tbe action which should be Commissioner and by the Secretary of was appuinted as Assistant Chief. Both protect the Government's interests. taken. The importance of thomugh investi- the Treasury. have continued in those positions to date. 4. Definite recommendation as to gations and carefully considered recom- 5. Investigations of applicants under eon- During the negotiations for the transfer prosecution of tax evaders, tax fraud mendations has been emphasized with the sideration by the President far appoint- of Past Office Inspectors to the Bureau of conspirators or Service ~enannel result that such a procedure has become ment as members of the Board of Tax Internal Revenue to create an organization involved in collusion or other established as a matter of practice. Appeals. for an Intelligence Unit, it was stipulated irregularities. by the Postmaster General that Mr. Roper Purposes and Duties Types of Special Investigations could have "six men of his awn choosing If a special agent has been lax in his but no more." investigation, fails to obtain all the facts The Order creating the Intelligence Unit The files of the Bureau of Internal This enabled Commissioner Roper to and is unable to arrive at a proper conclu- specified its purposes as the investigation Revenue contain thousands of detailed choose Post Office Inspectors who had sion; or, having all the facts, does not use of such charges against employees of the reports of investigations which have excellent records as investigators and were good judgment, the consequences may Internal Revenue Service as: resulted in convictions of tax dodgers. suited for the work which they would be react unjustly upon the taxpayer. For exam- 1. Extortion. A brief glance at the different types of called upon to perfom in this Sewice. This ~le,in the event a special agent has made 2. Solicitation or acceptance of a bribe. investigative work will illustrate, at this original gmup of Post Office Inspectors, an improper recommendation as to the 3. Embezzlement. point, although case types that are out- selected as a nucleus of the newly created assessment of a large amount of additional 4. Aiding in the prosecution of a claim standing will be detailed more fully later Intelligence Unit, became the first Special taxes and fraud penalties, or unwisely against the Government. in this review. Agents in Charge of Divisions in the new requested that jeupardy assessment be 5. Official and moral misconduct. The plincipal activity of the Intelligence organization. They were able to establish an made whereby the taxpayer's assets are Unit has been the investigation of income efficient and practical procedure because of levied upon, or, recommends criminal In addition to the foregoing, the tax fraud cases. These cases have involved their long experience in conducting thor- prosecution that is not warranted, the dam- Intelligence Unit was charged with the prominent individuals in professional, ough and impartial investigations. In the age to the taxpayer's reputation or busi- duty of investigating attempts to defraud commercial and public life. Large corpora- Intelligence Unit, an esprit de corps has ness may be irreparable. the Government of taxes due under the tions have been investigated with success been developed and maintained. Naturally, A similar situation exists with regard vmious Internal Revenue Acts. for the Government. Numerous investiga- from its record, the members of the Unit to personnel investigations. If the special tions have been made of racketeers and feel an individual pride in its achievements. agent fails to make a thorough and impar- public enemies who have amassed huge

24 ion OiFlCIAL USE ONLY fortunes through their illegal activities. Then, there is the case of two British sub- between employees and taxpayers or their Tax Evasion Investiaations ' representatives in various schemes to vio- A1 Capone, so-called No. jects who sold their interest in a steamship late the revenue laws. 1, and he most notorious leader of orga- company for a ~mfitof $4,200,000. They / The limited perso~elof the Intelligence During the period the nized racketeering in this country, was attempted to escape tax liability by having i Unit at its inception devoted the greater investigated by the Intelligence Unit. His the money paid to them in currency just Sewice was a part of the Bureau of Inter- part of its time to investigation of penon- conviction on income tax evasion was the prior to the departure of the boat upon \ nd Revenue, much of the work of the nel matters, involving collusion, bribery, fmt decisive hlow struck at organized crime. which they intended to return to England. Intelligence Unit concerned the investi- extortion and major conspiracy cases. The New York income tax evasion drive They were apprehended befure boarding gation of collusion of employees of he With the operation of the 1917 Revenue against racketeers preying an legitimate the vessel. Service with persons engaged in the illicit Act providing the higher emergency traffic of liquor, liquor permit frauds and industry likewise was very effective. The The American Optical Company was rates of taxation to pay for the additional tax evasion investigation of prominent caught in a scheme to evade income taxes I major eon~piracie~to violate he National wartime burden, numerous complaints Prohibition Act. motion picture stars resulted in several by understating, in its inventory, the accu- were received indicating tax frauds. As Such cases as the "$5,000,000 Con- criminal pmsecutions and brought to the mulation of gold borings and dust which time went on, more attention was required Treasury substantial amounts in taxes was melted into gold bricks, each weighing i spiracy" at , the Donegan in these investigations with the result that liquor permit fraud conspiracy at New and penalties. one thousand ounces. The income frum ' the lax work of the Intelligence Unit has Dishonest public officials including their sale Was diverted to the individual York City which made Donegan a tempo- since become by far its most important minor peace officers, judges, mayors of owners of the business. / rary millionaire hut brought him ten years activity. Such investigations which are large cities, governors of slates, legislators, There are numemus other cases in the imprisonment, and other cases of this type made in cooperation with internal revenue end memhen of the United States Senate files of the Bureau of Internal Revenue are commented upon briefly to show that agents and deputy collectors, have : phase of the work handled hy the intelli- also have been investigated by the which cover investigations made for the increased steadily thmughout the exis- gence Unit during the early years of its Intelligence Unit. In all cases where the purpose of establishing definite evidence i tence of the Intelligence Unit. ! organization. evidence warranted criminal pmsecution of indicated fraud whereby the tax, as well During the period from July 1, 1919, The Intelligence Unit, at the direction such action has been recommended. as fraud penalties, could be collected. to June 30, 1936, the records show that a of the Commissioner of Internal Revenue One of the best known public figures Many of such cabes originated in years total of 9,109 tax fraud cases were investi- who has been investigated for tax fraud for which the tax has been outlawed for I and the Secretary of the Treasury, has been gated. It is a significant fact that pleas of was the late Huey Long, Governor of collection by the statulr of limitations i called upon frequently to make special guilty or convictions have been obtained Louisiana and later United States Senator. unless fraud can be proven by the govern- , investigations which are not related to tax in more than 92% of all criminal cases He was assassinated just prior to the time ment. Often fraud has been established, 1 frauds or personnel delinquency. This involving tax frauds disposed of in the set for presenting evidence to the Federal pmsecutions followed and large sums 1 phase of the activity of the Intelligence courts. Detailed schedules of prosecutions Unit is varied in its scope. An outstanding Grand Jury relative to his tremendous recovered for the Treasury. and dispositions, and of tax investigations income from "political racketeering." The Intelligence Unit also has cooper- 1 example of an investigation of such nature and assessments are submitted as supple- The Teapot Dome investigation resulted ated in the investigation of estate tax ! in which the Intelligence Unit participated ments at the end of this review in the collection of approximately frauds and numerous cases involving the ! was the Lindbergh kidnapping case. During this same seventeen-year period $6,000,000 in taxes. attempted evasion of miscellaneous taxes the entire appropriation of the Intelligence The case of Charles E. Mitchell, New such as gasoline, theater ticket and Unit has been $8,125,000, or an average York hanker, brought a change in the tobacco taxes. of $477,941 per year. income tax law whereby the wealthy tax- The investigations of the The assessments oilaxes and penalties payer no longer would he able tu escape Intelligence Unit include numemus cases recommended for that period, as a result of tax liability by claiming fictitious losses involving attempted bribes, extortion, joint investigations with revenue agents and from alleged sales of securities. embezzlement, irregularities on the part of deputy collectors, totaled $385,905,602 Internal Revenue employees and collusion or a ratio of 2.11%. In other words, the

FOR OFFICIAL UTE ONLI I FOR OIFICIAL USE ONLY ! 1 Intelligence Unit cust the Government Chicago Official's Graft Marriage Licenae "Racket" An interesting feature of this case is the $2.11 for each $100 of taxes and penalties fact that McConnick was called before the The Gene Oliver case gained considerable James J. McCormick was Deputy City recommended for assessment as a result of Seabury Investigating Committee of New public attention because Oliver was a Clerk in charge of the Maniage License tax fmud investigations. Recoveries in these York in 1931 and questioned, concerning member of the Board of Assessors of Cook Bureau, , New York City, for cases represent revenue that would not have his cumpt practices. The day fallowing County, Illinois, and wielded power as a several years. It was his duty to issue been obtained without disclosure thmugh his appearance, he went to the Office of political leader in Chicago. mamiage licenses for a fee which he was investigation. These results have been the Collector of Internal Revenue far It was disclosed during this investiga- required by law to turn into the city trra- obtained despite the fact that, in addition the Second New York District, where his tion that the taxpayer deposited larger sury and, if called upon, it was his duty to to its work on tax fraud investigations, the daughter was employed, and immediately amounts of currency and checks in bank perform marriages in the city chapel with- Intelligence Unit has devoted fmm one- fiied delinquent returns. accounts in his wife's name a well as out a fee. His practice while performing third to one-half of its time to personnel McConnick made this move in an his own. Certain of these deposits were s marriage ceremony was to have a large or special investigalians. obvious effort to avoid responsibility. identified as proceeds from horse race het- number 01 $5, $10 and $20 bills exposed There are also numerous cases in which He knew that his testimony before the ting, campaign contributions and payments in an open drawer of his desk as a mute investigations made by special agents of Seabury Committee would he published of bribes made by large real estate owners suggestion to the happg bridegroom. He the Intelligence Unit with revenue agents and that a tax investigation was imminent. to effect reductions of valuations of their made a fortune in this "racket," victimiz- or deputy collectors result in securing McCormiek was prosecuted and convicted properties fur tax purposes. There were ing thousands of principals in marriage evidence to support the imposition of the during 1933 for failure to file return for also numerous currency deposits the ccremo~es.Fmni payments made to him 50% fraud penalty far years which other- the years 1929 and 1930. Due to his amounts and dates of which bore striking by bridegrooms, McCormick deposited in wise would be uncollectible on account prominence politically for marly years, a resemblance to amounts deposited by a accounts in savings banks from 1925 to of the statute of limitations. great deal of influence was broughl to bear syndicate operating slat machines in the 1930, from $40,000 to $50,000 each year. Of equal or greater importance to the in his behalf, particularly after McCumick territory over which Oliver held cunsider- Hundreds of couples who had been government is the increased revenue had been convicted but prior to sentence. able political influence. married by McCormiek were interviewed which results fmm the indirect benefits of Judge John C. Knox of the Southern During the trial of this case many inter- by Intelligence Unit agents and furnished vigorous prosecutions of tax evaders which District of New York, before whom the esting questions of law were presented testimony as tu McCormick's method of will be commented upon in detail later. case was tried, made the following state- involving interpretations of income tax exacting a fee from bridegrooms. It was ment prior lo imposition of sentence: statutes. The cow's dings were confirmed clear that the fees were by no means "I have so far as I recall, never failed by the United States Supreme Coun and volunt;uy. His high pressure methods of lo impose a prison sentence upon a man Dishonest Public Officials were of great "due to the government in compulsion were amazing. He made sneer- who wilfiully fails to pay his income tax. other tax pmsecutians. Oliver was convicted ing remarks before other couples when the Prosecuted as Tax Evaders My judgement is that those who hold out and sentenced to eighteen months impriu- fee was small and exhibited smiling satis- on the government in the way of tax pay- onment in the Leavenworth Penitentiary and faction when the fee was large. The Treasury has been euiched as a ments should, when they are discovered, to pay finer aggregating $12,500 together It was testified that when a bridegroom result of the persistent investigations by feel the rigors of law. The rest of us have to with the cost of pmsecution. The case was handed him a one dollar bill, McCormick the Intelligence Unit of public officials pay taxes and it is highly unfair for those appealed to the Circuit Court of Appeals would hold it up with a derisive frown so who acquired furtunes through dishonesty who have means to fail to bear their just which upheld the findings of the tnal court. that the other hridegrnums waiting to be and corruption. The revenue recovered in share of the cast of the government." A petition for a writ of certiorari to the married might be influenced to be more such cases has been very substantial and, Upon representations made to the Coun United States Supreme Court was applied liberal. McConnick's strategy usually in those cases where the evidence war- that McCarmick was ~ufferingfrom an for hut denied and Oliver was committed to succeeded. A $5,9610, or $20 payment ranted criminal prosecution, such proceed- incurable disease, Judge Knox sentenced the Leavenworth penitentiary to serve his bmught forth from the city clerk a fervent ings have been recommended. him to serve four months' imprisonment on sentence. and cheerful "God bless you."

FOR OlFlCllL USE ONLY FOR OFFICIAL USE ONLY each count to be sewed at an institution Anticipating the possibility of such a connection with his personal libilities and investigation of the Pearson Company graft where he might receive medical attention defense, the special agents had prepared attempted a similar procedure with respect payments as the means of securing public and fined him, in addition, a total of their case to prove this contention was to the payment of his income tax liability. roads contracts, the investigation of which $15,000. frivolous and inconsistent with the method The investigation developed that he imd resulted in the assessment and collection by which O'Brien's false returns had been received substantial fees fmm prominent of substantial amounts of tax. Several Police Chief-Tax Dodger prepared. clients and usually insisted that payment criminal prosecutions of other county The evidence of O'Brien's "tax-dodging" be made in currency. This necessitated a officers likewise were successful. Claude M. Worlcy, while Chielof Police was so definite that defense counsel could thorough and detailed inquiry with many at Indiampolis, Indiana, collected large not argue the merits of the case success- ramifications. Suffjcient evidence was Shipping Board Director amounts of gruft. He received a six-year fully. His tax liability for the years 1926 finally obtained to show his proper tax lia- a Tax Evader sentence and $10,000 fine upon pleading to 1928, inclusive, was established at bility and the facts warranted prosecution. guilty to tax evasion. Frank I. Denniston, former District Director $143.315. He was indicted finally and pleaded In passing sentence, United States of the United States Shipping Board of the guilty. John W. Davis, former candidate District Judge Baltrell emphasized that he New York District, was investigated by Building Commissioner Jailed for President, made a dramatic plea for had taken into consideration, in determin- the Intelligence Unit at the request of the leniency, urging that sentence be sus- ing the severe sentence imposed, the fact Chris Paschen, Building Commissimer of United States Senate Committee Investi- pended. Rockwood, however, was sen- that Worley had made his large income Chicago, who was ambitious in his politi- gating Ocean and Air Mail Contracts. tenced to serve three months in jail and from illegal sources during the prrid he cal efforts to succeed Mayor William Hale Denniston was exposed as a gxafter to pay a fine of $2,500. was Chief of Police and responsible for Thompson, was found to have had a very when he was indicted for tax evasion. the lives of the people of Indianapolis. substantial income, only a small portion of The assessment of $90,439 in additional Judge's Graft in Public Contracts which had been reported on his income tax taxes and penalties against him and the Legislator Convicted returns. The investigation of Judge George B. Parr development of cases against various It was established that he had received of Texas, developed that he was paid stevedores operating on the New York Lawrence C. O'Brien of Chicago, a mem- large payments from contracturs who were $25,000 in currency from the "graft" fund waterfront resulted from this investigation. ber of the llli~~oisLegislature for many favored in obtaining building permits. of the Pearson Company. This company years, was convicted on charges of evading Paschen reparted a net income of $5,108 was engaged on road building work and Investigation of Huey Long income tares. He was sentenced to serve and $28,614 un his returns from 1927 was dependent upon the favor of public eighteen months in the Leavenworth Huey Long was termed by the press as a and 1928, respectively. His net income officials for road contracts. Penitentiiuy and to pay a fine in the "political racketeer." He ruled the ~tate for each of those years was found to he Judge Wrr was prosecuted because of amount af $6,000. of Louisiana through organized force and 8232,418 and 5326,250. He was con- his failure to report the $25,000 and other O'B~ienoperated a teaming and wck- used the laws of the state to accomplish victed and sentenced to serve two years at unidentified income for tax purposes. He ing contracting business engaged exclu- unlawful purposes. Leavenworth and to pay a fine of $10,000, pleaded guilty and was sentenced to serve sively on public projects. Also, he derived He gathered mund him a large organi- which conviction was affirmed on appeal. two years in jail, which wa~suspended income from special services as a real zation of unscrupulous politiciang and upon the payment of a $5,000 fine and estate valluriorfor Chicago. It was further "strong-arm" men who enforced his dic- Former Judge Convicted immediate payment of the full amount of established that he owned a large building tates and controlled elections. Citizens of the liabilities including penalties, interest where several @easies were operated. Nash Rockwood, one of the most promi- the state who voiced opinions contrary to and cost pmrcution. Shortly thereafter During the trial of this case, O'Brien'a nent and successful trial attorneys in New those of Long were immediately subjugated Judge Pw's suspmsion was revoked counsel argued that the unreponed income York State, and formerly a county judge, through increases in real estate assess- because of nefarious conduct adhe was was from a municipal body and wnsidemd was uncovered as a willful tax evader. He ments. State laws were enacted by the Long sent to jail to serve the sentence imposed. by the defendant to be nontaxable. This had made a practice for several years of "machine" to damage their opponents. There are various other dated cases contention was offered in an effort to using obstructive and evasive tactics in which were the out+pwth of a general negilte wilful intent.

FOR OFFICIAL USE ONLY FOR OFfIClAl USE OlLV He gained his hold on the State of This case was considered by the investigat- States Attorney Viosea, who on recommen- so, and the discontinuance of the claiming Louisiana when he was elected governor in ing agents and the prosecuting officers to dation of the Treasury Department had of unallowable deductions disguised as 1928 and continued his domination after be one of the clearest cases of fraud on the been supplanted by Governor Moody in ordinary and necessary business expenses he became United States senator in 1930. revenue ever presented in a court. Failure to the handling of the cases, recommended to -have been enormous. He even went so far as to threaten publicly convict Sushan indicated more clearly than the Department of Justice that the remain- to b~ingabout the secession of Louisiana anything else the tremendous influence of ing cases be dismissed. This was contrary Long in Louisiana. from the United States. Tremendous to the judgment of Treasury officials and Leading Gangsters amounts of graft were c&ecied by his Prior to the time set far the trial of the the Department of Justice was so advised. organization and he was the principal other defendants, Huey Long was assassi- However, the United States Attorney was Sent to Penitentiary beneficiary. The Standard Dredging nated. The report outlining Long's tax eva- authorized to take such action in the mat- Company of New York City, the contracting sion had been submitted late in August ter as he might see fit. With the advent of Pruhibition, organized firm which built the Shushan Airport at 1935 by the special agents. It was Before receipt of this authority, a num- crime quickly developed. Enormous profits New Orleans, alone paid grdt believed, upon review of the facts, that ber of the defendants had been permitted, were realized from trading in beer and in excess of $500,OM). criminal prosecution was warranted. without the knowledge of the investigating liquor. Competition was extremely keen. Long advocated a so-called "share the On September 9, 1935, the Chief of the officers, to plead guilty and pay the taxes In a few years the more successful bootleg- wealth" movement, promising every man Intelligence Unit was in Dallas, Texas, due. Upon receipt of the authorization, the gers and their henchmen "took over" the and woman in the country a home valued consulting with farmer Governor Mwdy cases of the remaining six were dismissed. territories of small operators. Their power at $5,000 and an annual income of of Texas, who had been appointed Special These included Seymour Weiss and State and profits grew to amazing proportions. $2,500. The "share the wealth" movement Assistant Attorney General to handle the Senator Jules Fisher, who were the most The ability of a bootlegger to operate suc- gained a great many followers, who prosecution of these cases. They were important of the group. cessfully on a large scale depended upon believed that Long was sincere in his ~lan arranging far a Grand Jury hearing to be This closed this group of cases in sn far his which was of two kinds: to take wealth away from the rich people held on October 3, 1935. On September as criminal action was concerned, hut the First: A convpt alliance with dishonest thmugh legislation and distribute it to 10, 1935, Long was assassinated. Treasury Department is proceeding uigol; puliticians and police; those who were less fortunate. The irony Evidence of fraudulent tax evasions ously in its efforts to collect all taxes, penal- Second: The ability to withstand compe- of this situation is that he was individually by Governor O.K. Allen of Louisiana, ties and interest due by these taxpayers. tition of other bootleggers by maintaining a accumulating fabulous wealth through his described in newspapers as Huey Long's The investigation of the disposition of gang of so-called "strong armed" men who organized cormptian and control of con- "puppet" Governor, also was under consid- the more than $100,000,000 of public were usually exconvicts. tracts for state roads and other improve- eration with s view to criminal prosecu- improvement funds spent by the state of Unfortunately, it seemed to be possible ments in the State of Louisiana. This tion, hut he died before the case could be Louisiana and its political subdivisions for the bootlegger to make contacts with brought ahout an alarming deficit in the presented to the Grand Jury. during the reign of Huey Long, resulted local public officials who afforded him finances of the state. Long's assassination thus closed the in deficieucies and penalties in excess of immunity from police interference. The The investigation developed evidence hles of the criminal case relating to him. $2,000,000 being recommended against principal consideration fur "pmtectiod' against prominent members of the Huey In the course of these investigations, the many taxpayers who had been favored was graft payments. The extent of such Long group. The first case tried, that of indictments were obtained against eleven directly and indirectly hy these expendi- pmteotion generally depended upon the Joseph Fisher, a member of the state legis- other individuals, members of the Long tures. More than $300,000 of this has size of the payments. lature, was prosecuted successfully. Fisher pup, and these individuals were awaiting been paid or collected; and an examina- The second problem of the hwtlegger was sent to the Atlanta penitentiary for trial at the time of Long's murder. tion of the Bureau records shows that the was the elimination of competitors and eighteen months. Delay ensued in bringing these cases to indirect benefits - by way of the filing of competition by force, through the use of The second case brought to trial involved trial although every effon was exerted by more nearly correct returns, the reporting bombs and bullets. Abe Shushan, President of the New Orleans the Treasury Department to have them dis- of receipts from graft, the filing of returns This period marked the heginning of Levee Board, and resulted in his acquittal. posed of promptly. In May, 1936, United by persons who had not previously done organized racketeering in the United States.

FOR OFFICIAL USE ONLI Gangsters' Operations Syndicated During he early days of prohibition, In Inany instances, local prosecuting Al Cepone - Public Enemy when bootleggers were confining their attorneys had been forced by public senti- No.1 Vicious Crime Organization As the bootlegger's power increased, be activities to the distrihutiun of beer and ment to prosecute thr ringleaders in racke- Revealed sought new fields. Gambling, while slave liquor, public sentiment toward eforre- teering. Their prosecutions were traffic and all farms of lawlessness were Chicago had gained an international repu- ment of the Prohibition Act was apathetic; unsuccessful because of bribes and syndicated in all large communities by tation from 1924 to 1930 because of orga- md, to a considrrable extent, the illicit cumpt political influence used by the the racketeers having the most power. nized lawlessness. Gang killings were a traffic in liquor was condoned by a large racketeers. Prosecution witnesses were Eventually, legitimate business also was frequent occurrence. The mosl notorious portion of people in this countly However, intimidated through fear of bodily harm invaded by racketeers. They found many Leader of organized crime in that city and when the activities of the racketeers finally if they testified against the racke~eers. awnues of entry. Fur example, unscrupu- in the nation was A1 Capnne, known as reached those dealing in necessities and The experience of the Intelligence Unit lous leaders of labor unions willing to "Scadace Al," and termed by the newspa- it hecame apparcnt that the racketeer's in its tax fraud investigations of bwtleggerr, sacrifice the interests of union members pers as Public Enemy No. 1 of the United tributr was la be added tu the consumer's gdten and other individuals engaged in for their personnel benefit formed alliances States. There is no doubt that he was the cost, the public became aroused. Public illegal activities provided the means of strik- with the racketeers. most vicious and dangernus racketeer in sentiment demanded that immediate ing at the heart of the powedul racketeering The invnaiun of racketeers into legitimalr the history of this country. His reign as actiun be taken by law officers to curb organizations. It seemed to be the only elkc- business was bnmght about to some extent vice overlord began in 1924, when he suc- this organized lawkssness. tive method by which the government could becauae it was the practice of cewain ceeded , and continued up to I.aw enforcement agencies found it then proceed against them. industrial concerns to call on organized the time of his conviction on the charge of difhcult to obtain evidence against notari- The Manley Sullivan tax casr had estab- criminals to assist them in breaking strikes. evading incomt: taxes, Oclober 17, 1931. ous racketeers engilged in the active pru- lished that those engaged in unlawful busi- Labw unions provided a rlew bonanaa Johnny Tarria had come to Chicago motion of crimr because of the fact thal ness were nevertheless subject to income fur the racketeers. The racketeers were from New York during thc early days of the leaders of the major organisa- tax. The United States Supreme Court in able to share in the direct income of Prol~ibitionto succeed the murdered Jim tiuns carried on their lawlrssness through its decision in that casr held that gilins unions by means of dues and special Colosimu, who was among the first of the gang suburdinatcs. rralizrd from illicit traffic in liquor werr assessments. More irnprtant to them, notorious racketeers of the early The prosecution and convictiun of taxable under Federal revenue laws. financially, they were in a position to use Prohibition era. Torrio had considerable employees did not aflert the operations The personnel of the Intelligmce Unit their control of the labor union as a means executive ability and was skilled in the of the racketeer leaders as they immedi- then cunaisted of less than 100 special of forcing employers to pay tribu~e. ways of the underworld. He had seized the ately replaced the cmplayees with other agents. Their entire time was required chance to gain power and wealth by orga- subscruient tools in further rrime. for the pelforn~anceof regular duties. Public Sentiment nizing Chicago vice, liquor and galnhling The racketeers exlended their under- However, fmm this limited personnel it Demanded Action interests. He dominated nut only the first world activities with considerable success was decided to delail a group of special w-dcarrtmlled by Colosima, bur held law- by directing others to act for them, thus agents to strike at the mosl powerful of The next development was the formation less sway throughout the city. He made the avoiding any personal activity which would these racketeels. of all sorts of alleged "aommercial" and most of his opponunity, and with cansider- cause their own apprehension. The group of agents detailed to this "protective" assoeiatinns, fostered by the able financial success. In 19'24, Tu~io The gang leaders always benefited finan- work included many of the best men in gangster leaders. By this means, racke- became the target of a spray uf bullets. cially and amassed great wealth. This pm- the Servicr. The course of the investigation teers exacted uemendous amounts uf Although badly wounded, he recovered vided an opportunity fur the Inlelligence into the hidden sources of income of the moncy from tnarlr branches of legitimate and promptly quit Chicago. Unit under the Income Tax laws to attack "hig fellows" was a lonuous trail through industly. The racketeers' wedprrs were Capone then came into power. Immedi- the 1rader.s of organized 1,aekcteering the crooked ramifications of underworld force and cumpulsion. They did not hesi- ately upon his succession to the throne of or use where other law enforcement agencies had intrigue. tate to commit arson bombs or gangdon, in Chicago, there was a series been unsuccessful in their efforts tu reach Let us note some of the results. machine guns to acrouiplish their ends. of gang wars. Rival Saclionti sought to dis- the "big fellows." place hi3 control of underworld activities.

FOR OrFlCIAL USE ONLY FOR OFFICIAL USE ONLY There were 16 murders fmm gang casual- gangsters. Finally, the round-up included sat immediately behind the defendant in "The court would have been blind, ties in 1924. Wars between gangs contin- the principal lieutenants in his organiza- the court room. Since Capone was being indeed, if it had not observed the intimida- ued until 1929. The murder record rose to tion and outstanding rival gangsters. escuned by squads of police, it appeared tion practiced on the witnesses almost 64 in one year. Same of the most active members of that D'Andrea was serving in some capac- under the eyes of the court. Capone thus established and maintained Capone's organization, known as his "inner ity other than that of a bodyyard. "It must he borne in mind that this his place as recognized mob leader. His council," were A1 Capane's bmther, Ralph It seemed clear to the special agents respondent was sitting with his concealed organization was acknowledged as heing Capone, who was his principal Lieutenant; that he was present at the trial to intimi- firearm behind the defendar~t(Capone), so highly effective in obtaining results that Frank Nitto, Chief Executioner and date Government witnesses as they took while the defendant was glaring at wit- an one occasion he was called in by the Treasurer; Jack Guzik, Business Manager; the stand and to bolster up the courage nesses who were on the point of remem- Chicago newspapen to settle a strike of Philip D'h~drea,Bodyguard; Muw L. of defense witnesses. bering something about the business in their employees. Humphries, who specialized in the business On the first day of the trial, Judge which the defendant was engaged, and Capone's income was enormous. rackets; also Ted Newbury, Rocco and Nick Wilkerson ordered that no firearms be which the witnesses could not possibly Investigation disclosed that he had failed De Grazia, other principal lieutenants. The carried into the court roam. Immediately have forgotten, yet witnesses faltered and to report large ~rofitsfmrn gambling, boot- most notorious of the rival gangsters were before one of the noon recesses during failed at the critical point. legging and various fonns of racketeering. Teny Druggan and Frank Lake. the trial, D'Andrea was called from the "To this camp at the Lexington (Hotel) When the special agents finally finished Most of the tax evaders investigated in court rwm by special agents and escorted were aummoned the witnesses who testified their investigation and built up a great Chicago during the intensive drive were into an anteroom. He was searched and a to the defendant Capone's losses on horse mass of evidence, the government was primarily engaged in different kinds of fully loaded 38-caliher revolver was found races. At that camp were summoned coun- ready to make its first public revelation^ illegal business. They kept little or no concealed inside his belt. In a vest pocket sel for conferences and Gom that camp, of Capone and his crime organization. records. They had no bank accounts in he carried a supply of extra cartridges. under what coercive influence we can only Capone was brought to trial at Chicago their own names. A warrant was issued for his arrest charg- conjecture fmm what transpired in court, in October 1931. The trial was publicized Because of the nature of their activities, ing contempt of coun and he was placed came that array of shacking perjury with internationally, representatives of foreign it was an exceedingly difficult task to in jail pending disposition of the Capone which the cow was confronted during the newspapers and many national newspapers securr the proper evidence to convict case. Later, he entered a plea of guilty and closing days of the trial. being in attendance. Upon conviction he them in coun of evasion or income taxes. was sentenced to six months in jail. "We had here the spectacle of witness was sentenced to ten ymin the federal Persons having knowledge of their finan- after witness testifying in a way which penitentiary and one year in the Cook cial transactions were extremely reluctant Judge Wilkerson was psychologically impossible, pretend- County jail, to be sewed at the completion witnesses because of fear that their fami- Excoriate8 Gangatera ing to remember things which, in the very of the prior sentence, and was fined lies would he killed. nature of the hunlan mind, the witness In sentencing D'Andrea, Unites States $50,000. The conviction was appealed The Capone organization had operated could not have remembered if he had District Judge Wilkermn stated: to the Circuit Coun of Appeals and to in various illegal business ventures for forgotten the things which he pretends to "The respondent claims that he did not the United States Supreme Court, but the several years apparently without serious have forgotten. It was pejury on its face. know what this band was doing hut his vial court was sustained. intelference by local or federal authorities. The activities of ths hand were a menace to understanding was that they are engaged The organization was so powerful that it the court and its officerj to the due adminis- in gambling and bootlegging, Capone's Henchmen Rounded Up was almost impossible to find witnesses lo tration of justice." "It is perfectly clearlrom a long array testify against them. The work of the In~elligenceUnit at of conclusive circumstances that this band During the course of the trial of A1 Chicago in bringing income lax evaders exercised a coercive influence over those Capone, he was accompanied hack and with whom it comes in contact, which is to justice was not confined merely to the forth between the Federal Building and the Capone case. The investigation reached far nothing less than insurrection against the Lexington Hotel by Philip D'Andrea, an into the secret recesses uf other rcigning laws of the United States. ostensible personal bodyguard WAndrea

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY "Knowing what was being done to others" Capone's Conviction, Applauded taxes on illegal gains. investigation in connection with narcotic by Press, Prompts Large Payments engaged in undenvorld activities, he Preliminary inquiry resulted in investi- smuggling, bootlegging and other illegal from Delinquents feared he would be prosecuted himself. He gations ol approximately 250 individuals activities. volunteered to couperate in the investiga- Thus, we have a portrayal, in a very gen- and severel corporations. The income tax returns which he filed tion of his transactions. At the end of the eral way, of conditions as they existed in Ongjnally the dnre was intended to for the years 1928, 1929 and 1930 investigation the gambler paid the Chicago, when the Intelligence Unit began cover only racketeers who were preying on reported net income in the respective Government $200,000 in cash. its investigation of the variourmernbers of legitimate business. As it progressed, it was amounts of 56,852, $7,394 and $6,556. A swnewhat similar experience was the Capone syndicate. extended to cover alleged corrupt officials Gordon's personal living expenditures recorded with another individual engaged The conviction of brought in New York City. The irregularities of these exceeded several times the amount uf net in illegal activities. Upon the conclusion of favombk conunent in the press. News- officials were being discovered through the income reported by him on his !?turns. the investigation of his case, the Treasury papers, in their stories and editorials, activities of the Seabury Committee, which The investigation in this ease was very received approximately $238,000. Numer- highly commended the work of the Intel- at that time was making an extensive inves- tedious and complicated. Waxey Gurdon ous other instances of this character could ligence Unit. Editorial expression through- tigation of public officids. had learned his lesson in 1924 when he be cited. our the nation applauded the conviction Several of the most notorious hootleg- was indicted for possessiun and transpona- Racketeers under investigation by the and appealed for complete suppression of gers, gamblers, operators of lottery games tion of two trunks d narcotics. In that Intelligence Unit have endeavored to avoid gangsters. An amused public opinion was and public officials in New York City were case, he had written a letter to the railmad criminal responsibility hy offering to pay quickly manifested. indicted and convicted of the charge of company transporting the trunks which taxes and penalties with interest and This canvictim, press observers said, evading taxes. were traced to him and led directly to his frequently an additiwd amount in lieu did more than anything else to provide the Forty-seven indictments were obtained apprehension. Fiom that time, Gordon of criminal prosecution. The policy of the inspiration which induced law enforcement as the result of the drive. Additional taxes carefully avoided signing any checks, Bureau of Internal Revenue has been that agencies, both local and federal, through- and penalties were recommended for memoranda or other records which might in those cases in which the evidence is out the nation, to institute drives against assessment in the total amount of be used as a means of identifying his deemed sufficient, criminal prosecution organized crime. $5,683,706 in this group of cases. handwriting and involving him with shall he instituted. The indirect results of the Capone transactions. Stcps are taken also to saleguard the pmsecution were most beneficial. Many "Waxey" Gordon lnvenigation Government's interests with respect tu delinquent taxpayers, including those Convict. Notorious Gangater-- Hidden Bank Account. the cullec~ianof the civil liability by filing engaged in legitimate husiness, as well as Underworld Activities Exposed liens where ntlcesaary. It is the practice, All of Gordon's bank accounts which con- individuals in illegal activities, immedi- during an investigation, to keep in mind Among the list of those pro~ecutedas a tained the proceeds from his syndicate's ately filed delinquent returns at the office the ultimate collectibility of the tax as result of the New York drive was Irving operations were maintained in fictitious of the Collector of Internal Revenue as well as the criminal procedure. Wexler, better known as "Waxey" Gordon, names. All writing in connection with the result of the Chicago drive. a gangster who had been notorious in such accounts was done by his employees. It is wwhy of note that an increase of Drive On New York Racketeers underworld activities in New York City These accounts c:rmtained odlions of $1,136,588 in the collections from delin- Nets 47 Indictments of since 1905. He was undoubtedly the most dollars in deposits. It was essential to quent returns in 1931 over 1930, was Bootleggers, Gamblers, poweIful of the racketeers in New York identify the accounts as being those of repaned by the Collector of Internal Officials, Lottery Operators City and the eastern part of the country. Waxey's syndicate. Revenue for the Chicago District. This sum Reputhle police officials have stated This made it necessary to devote a great After the successful conclusion of the was more than double the amount collected that he was responsible for a number deal of time to an analysis uf the deposit from tha~cource in the preceding year. investigations in Chicago, the Intelligence of murders and other acts of violence. slips in an effort to establish, by the hand- Early in 1931, a "big-shot" gambler Unil, in the early pan of 1931, instituted Waxy Gordon had been convicted for writing and other means, the identity of called the office of the Collectur of Internal an intensive drive against racketeers in various crimes, including lameny, assault the persons from whom the funds were Revenue at Chicago and stated that, New York City, who were evading income and robbery. He had been the subject of received. It was vital to determine Gordon's

FOR OFFlClll USE ONLY 101 OFFICIAL USE ONLY income from his bootlegging activities as of the government or of any private client, Inveatigetion of Racketeers brought about by the Herberts or by evidenced by alias bank accounts. Also, as has been done by the agents and the Preying On Legitimate Business "strong-arm" intimidation. The Herben brothers paid a substantial tax liability; investigators bed la establish his ownership government attorneys in this case. When the New York dlive was eom- and, in addition, Charles Herhert was of various properties in which he was "So often it is stated that you cannot get menced, organized crime had been sur- convicted of tar evasion and sentenced alleged to have held an interest. the very highest quality of service in pub- cessfully making in-roads upon legitimate to the penitentiary. The investigation in this case extended lic uffice, that it is well to note it in this business. Many important business enter- uvcr a period of appmximately two years case. I defy anyone to show me any prises were gang victims, financially. But The Milk "Racket" and required perseverance and ingenious instance of higher quality of service on they were unable to obtain action from the effort Gordon had endeavored very care- behalf of any private client. local enforcement agencies because of There wus in New York an organization fully to safeguard himself by taking what "These agents, small salaried men, who existing collusion between public officials known as the New York Milk Dealers he thought uauld be sufficient protection unquestionably could have received fabu- and racketeers, or inability to secure Association. Its membership was built up to avoid personal responsibility. Like lous sums had they been willing to deviate evidence. through compulsion and each dealer was other gang leaders his dealings were from the strict line of their duty, or even to required to pay the organization according through his lieutenants and employees. relax their diligence, have gone ahead and The Poultry "Racket" to the quantity of milk handled. But, a tax liability of $821,136 finally was have accumplished a collection of evi- This organization was headed by Lany For example, an organization was formed established. dence such as is truly astounding." Fay, a notorious racketeer and night under the name of the Greater New York Evidence was also developed to warrant Incident to the investigation of Waxey club operator of New York City. Fay was Live Poultry Association. Its charter indi- criminal prosecution. He was tried in Gordon, several associated cases were indicted on the charge of evading taxes. cated altruistic purposes aimed toward December 1933, for evading income taxes successfully investiga1ed with gratifying He waa murdered a few days before the improving conditions in the poultry indus- fur the years 1930 and 1931 and for con- results both as to the amount of taxes , date set for his trial. spiracy to evade taxes for each of those recovered and with regard to criminal try. The idea was quickly seized and developed into a "racket" by two brothers, yea-. The jury deliherated fony minutes prosecution. Other "Association" Racken and returned a verdict of guilty on all An interesling incident of the Waxey Charles and Arthur Herbert. counts whereupon sentence was immedi- Gordon investigation concemcd ihe refusal The Herberts, thereafter, by varied The same situation existed in dry cleaning ately imposed. He was committed to prison of Frederick S. Lang, Assistant Secretary means, practiced atortion upon business e~tahlishments,the garment industry and for ten years, lined V20,000 and, in addi- and Treasurer of the Jefferson Trust men engaged in honest enterprise. These related businesses. Fwdstuffs were not tion required to pay the cost of prosecu- Company of New Yurk, New York, to testify two brothers were the business agents of immune. There were racketeering organi- tion, totaling $60,000. before the grand jury relative to financial the two unions controlling labor in the zations operating under the guise of relations of his bank with Gordon. Lang poultry indust~y. "associations" which obtained substantial Judge Commends Prosecution was sentenced to jail for nincty days by Poultry dealers were required to pay one income from the fish and flour dealers, Judge Knox. cent a pound on all poultry sold in New artichoke dealers and various other After passing sentence Judge Coleman Waxy Gordon unquestionably was York City. In addition, they were obliged to business concerns handling fwdsluffs. made a statement in which he compli- Public Enemy No. 1 of the Eastern part of purchase all poultry feed from a company Investigations made by the Intelligence mented the government on its excellent the United States. His confinement to the owned by the Herberts and other racke- Unit were helpful in breaking up numer- p~-eparationand trial uf the case. He said, penitentiary t~ cerve the 10-year sentence teers. They were likewise forced to rent all ous organizations of racketeers who had in part: for tax evasion culminated a quarter of a chicken coops for transpofting poultry been making considerable headway unmtc "...it is my firm conviction that never in century of lawlessness on his part from a company which had a monopoly an lested hecause of carmpt political alliances. this court or in any other court has there the business and charged exorbitant rates. been such fine work dune, either on behalf Failure of any of the dealers to pay tribute in the various forms demanded invariably resulted in labor trouble

FOR OFFICIAL USE ONLY FOR OFFlClAL USE ONLY Racketeers Use Labor Unions Wealthy Contractor Sentenced As a result of the tax fraud investigation called for hy the plastering contracts hut by special agents, it was learned that sub- they received no service or irlfonnation The racketeers were very active in their During the Grand Jury Hearing on the stantial cash payments were made by vari- of any kind. If the plastering contractors efforts to obtain contml of labor unions Commerford case, Patrick McGovern, one ous motion picture theater companies to a failed to pay these "commissions" or and had met with a considerable degree of the mast prominent subway conswction "racket" collector who was identified as an "fees," their men would be called out of success. men in New York City, was called as a wit- associate of Maloy. on strikes. The busincss agent of a labor union was ness and asked ahout the payment of On one occasion when Malay's home When strikes failed to accomplish in a very favorable position to &rich him- $380,000 by his company during 1928, was robbed, it was reported that $63,000 results, buildings under construction were self by using his power as the executive 1929 and 1930. in cumency was taken. Maloy was indicted set on fire. Sometimes, contractors were head of the union to exact tribute fmm His answers were evasive and as a con- for evading taxes amounting to $80,602. seriously injured physically. In some employers. sequence he was sentenced to thirty days The day prior to the date set for his arraign- instances, actual murders twk place. Several cases of this type were inveati- in jail for contempt of court. This action ment he was murdered by gangsten. Among the buildings destroyed by fire gated and a great deal of publicity was caused considerable comment in newspa- were a number of very large apartment given to the Commerford, Brandle and pers because McGovern was very well Other Leaders in Organized Crime houses which were practically completed Maloy cases. known in New York City and immensely except for the plastering. wealthy. It will be observed that many of the racke- The income tax fraud investigation The Commerford Case teers have been brought to justice through hrought about the indictment of Monforte Brandle - Tax Evader the collateral charge of evading income Patrick J. Commerford was the business and Gagliano and ten members of their taxes. This has been the most effective agent of the Hoisting Engineers Union. It Theodore M. Brandle, labor leader at group. They were convicted and sentenced means of reaching the leaders of organized developed that he had an income far in Jersey City, gained considerable wealth to terms varying fmm four months in jail crime. The "big fellows" have sought to excess of his salary from the union as busi- as a result of his activities, but most of his to two years in the Federal penitentiary. protect themselves by avoiding any active ness agent. He was on the pay mll of can- income was not reported for income tax part as a principal in illegal business other tractors who employed members of purposes. Other Racketeers Convicted - than orally directing its operation and Commerlord's union on various projects, He pleaded guilty to evasion of income Revenue Gain. for Government receiving the financial benefits. such as excavation an subway construction taxes. The court sentenced him to pay the An outstanding example of this situation While the Chicago cases and the New York contracts, which required that the work be tax liability, approximating 535,000 and a is the Monforte end Gagliana case. These drive on racketeers have been commented performed without delay. fine of $5,000. The greatest blow to him, men were originally small contractors upon in detail, there were, as a matter Commerford's practice was to threaten however, was the loss of prestige as a labor doing lathing work for other contractors. of routine, similar investigations of other to call a strike. Then the contractor would leader because of the disclosure of his They organized Italian contractors engaged notorious racketeers and tax evaders negotiate with him to avoid penalty for individual gain and his deception of labor in such work and created the Plasterers throughout the country. Several such delay under the contract. By means of a union members. Information Bureau, Inc., in New York investigations are worthy of brief comment. substantial payment the contractor would City. All the plastering cantracton in the be permitted to continue unmolested far s Maloy's Strong-Arm Method Bronx, with two exceptions, were forced Max Hassel - Beer Baron while longer. Thomas E. Maloy, business agent of to become members and pay fees to this Commerford was convicted of the charge Mendel Hassel, better known as Max the Chicago Moving Pictures Machine "association." In exchange for these pay- of evading taxes for the year 1929 and Hassel, was w immigrant to the United Operators, had dominated that organization ments, they were to receive fmm the sentenced to one year and one day in the States in 1911, unable to read or write, for several yeam. He used terroristic meth- ''association" credit, information and Federal penitentiary at Atlanta and fined with the worldly wealth of 815 between ods, including bombing of theaters and assistance in making bids for jobs. 82.000. five members of his family. During prohihi- physical attacks by his "strong-arm" As a matter of fact, the members were tion he became a beer harm operating in men on obstreperous operators who forced to pay five percent of the amount Pennsylvania and New Jersey. attempted to dispute his control.

FOl OFFICIAL USE ONLY - In 1928, he was indicted and pleaded Ten different hank accounts with Aid to Prosecuting Attorneys Opium Smugglers guilty to income tax violations. He paid deposits totaling $1,083,W5 were found The work of the Intelligence Unit is not Numerous cases relating to alleged evasion the government $150,000 and was fined and evidence was obtained indicating completed with the investigation of a case of income tnxes by opium dealem in $2,000, but later he started anew to con- substantial increase in net worth during and the determiniation of evidence to sus- Honolulu, Hawaii, were referred to the ceal his income. On April 12,1933. five the few years he was active in the Harlem tain the 50% fraud penalty in civil cases Intelligence Unit for attention. The investi- days after beer had become a legal prod- district. or in criminal prosecutions. Often, it gation which began in February 1932 was uct, Hassel was murdered. A key to his He was indicted and convicted on the develops that considerable work must be concentrated upun five of the most active a&-deposit box was found on his person. charge of failing to file returns and for eva- done by special agents after the tax evader opium dealers, Lee Kui, Sam Young, Hong After considerable negotiations, a court sion of taxes. The court sentenced him to has been indicted. Chang, Lim Beu and Hong Chack. order was ohtained authorizing the opening three years in the Federal penitentiary and The United States Attorney is assisted in Within six weeks after the investigation of the box. It contained hundles of hank to pay a fine of 515,000. the had started, telegraphic assessments were notes and gold certificates totaling his preparation of case for trial, and he is frequently aided in locating a fugitive made against the five opium dealers in the $214,000. The notes and certificates were Jimmy LaFonteina - Gambler total amount of $267,054 and liens were each of not less than $50 denomrnation, from justice charged with violation of The case of Jimmy LaFontsine received immediately executed against all of their with several $5.000 bills. A jeopardy tax Internal Revenue laws. much space in the newspapers because of For example, Eldridge S. Price, alias assets. Indictments were obtained against assessment approximating S100,MN) was his success as the operator of the laqest all five defendants. Four of them pleaded made, all of which was collected from the Price E. Crawford, of Dallas, Texas, was professional gambling house cate"og to guilty. The remaining defendant paid his cash contained in the bax. a high pressure promoter and confidence Government employees and residents of man and his operations covered all parts of taxes in full and the criminal case against the District of Columbia Sam Beard - Gambler the United States. His scheme was to pm- him was dismissed. LaFontaine flourished for years under mote a project in one section of the coun- A court ruling important to the Bureau Sam Beard was a notorious racketeer of a "do nothing" policy of authorities in try and suddenly leave that vicinity and was made during the trial of one of the Washington, D.C. He was active for several Maryland and the District. He was sus- start operations elsewhere on a different defendants. The court laid down the prin- years as a professional gambler and hoot- pected of paying out much money for project. None of these projects was ever ciple that bank accounts showing almost legger on a large scale. "protection." The Gibson Investigating successful. daily deposits and withdrawals of substan- Investigation developed that he had Committee of the House was amazed at Price and his wife gained the confidence tial sums over a long period of time were evaded taxes. He was indicted, convicted this gambler's unchecked activity, of elderly women and widows who invested prima facie evidence that the depusitor and sentenced to serve eighteen months At the request of Mr. Wm. H. their funds with the result that many of was actively engaged in some business in the penitentiary and to pay a fine of McReynolds, then head of the Bureau them hecame paupen. Price was indicted and was under legal duty to port it to 512,500, together with costs. of Efficiency, and now Administrative far evading income taxes and released the Bureau of Internal Revenue. Assistant to the Secretary of the Treasury, after furnishing bond. He failed to appear While these cases did not entirely elimi- special agents were assigned to conduct for trial. An exhaustive search was made nate the opium traffic in Hawaii, the effect a sweeping investigation. The result was covering a period of several months. was to reduce that traffic to a vezy luw During recent years the "palicy" or "num- the conviction of LaFontaine as an income Whenever informalion was obtained point and nmwthe field of operations bers" games became very active thmugh- tax evader. IaFontaine's trial was a sensa- as to his possible whereabouts, the office of narcotic dealers. out the country. The operators became tional expos6 of his operations. In his case. of the lntelligenee Unit nearest to where A significant result of these rases is the wealthy. One of the most prominent was taxes and penalties in the total amount the "tip" originated would he advised. fact that the Collector of Internal Revenue, Jose Enrique Micro,. . . who operated the of $206,651 were collected hy the Bureau Eventually, Price's trail was picked up Honolulu, estimated that, since the pmse- "numbers" game in Harlem and was very of Internal Revenue and HFontaine was in Alaska where he was apprehended. cutian of these cases, tax receipts from successful financially. sent to jail. He was returned to Texas for trial, Oriental residents who previously were and convicted. notorious tax defrauders have increased 100 per cent.

FOR OFFICIAL USE ONLY Motion Picture Stars Other Tax "Experts" Involved knowledge regarding the improper action There were individual cases involving taken by the accountant and did not pmminenl motion picture actors, which are Investigated - Several The investigation led to another accoun- understand that the deductions claimed illustrated below. These were investigated Million Dollars Collected tant engaged in similar fraudulent prac- were not allowable under the regulations. separately and not connected with the tices. It developed that he had assisted 95 Settlement of such cases was permitted gmup of cases Listed above. taxpayers to evade taxes. During the early part of 1928, a former an the basis of the payment of additional Subsequently, three other accountants Marion Davies employee of Marjorie Berber, macroun- taxes due and, in some cases where facts were included in the investigation because tant in Hollywood, , gave the warranted, the negligence penalty was of the manner in which they It cost Marion Davies Douras, best known Intelligence Unit important information on asserted. had prepared returns. About 200 different by her stage name as Marion Davies, tax law violations in the movie colony. The As the result of this series of cases, taxpayers were investigated, involving 5775,000 to learn that it does not pay to taxes, penalties and intereat in excess of investigation developed facts that placed evade income taxes. approximately five hundred case years. $2,000,000 were assessed and practically many of the movie stars in the stark role Marion Davies ranked among the highest These investigations resulted in eri- the entire amount was collected. of tax dodgers. salaried stars of the screen for nearly ten dence which indicated that these five Some of the most prominent of the movie Miss Berber's employee related that, years and she resorted to various schemes accountants had knowingly and wilfully stars investigated in this drive were: during the period of her employment, to defraud the government of income taxes. assisted taxpayers in filing false and fraud- Tom Mix infomation and evidence had come into For the years 1920 to 1927, she had been ulent returns. Robert W. & Mildred Brownr: her possession indicating that her employer paying nominal income tax, approximating Miss Berber was found guilty and sen- Raymond Griffith was engaged in a scheme of tiax evasion a few hundred dollars a year. tenced to two-and-one-half years in the Eleanor B. Vidor for the benefit of a large number of motion During June of 1928 an anonymous let- federal penitentiary and fined $5,000. The Daruthy Mackslll Mendes picture actors, actresses, directors and ter was received by the Intelligence Unit other four accountants also were success- Lothar Mendes producers. Fur several months discreet which alleged tax evasion by Miss Davies. fully prosecuted. King Vidur preliminary inquiry was made with respect A thorough investigation was accordingly Lewis Mitchell to these allegations. It was found that a made of her income tax returns. In the Two Million Dollars Collected George E Million, Jr. plan of evading taxes on returns filed for course of this inquiry, Miss Davies Malcom McGregor clients had been practiced for years. It developed that many of the taxpayen appeared far conference at the office of the Mrs. Malcom McGregor Miss Berber's scheme was to claim for whom fraudulent returns had been pre- Chief, intelligence Unit. She endeavored Dorothy Sebastian deductions fmm gross income of certain pared knew of the action taken and know- to m&e light of her tax troubles and gave Bess Meredyth large, alleged expenditures which either, ingly participated in the attempts to evade frivolous answers lo questions concerning William Christy Cabanne in fact, did not exist at all, or were not taxes. her income. It became necessary finally to Mrs. George E Marion, Jr. allowable deductions. This was bmught Of this group twenty-two entered pleas advise her of the seriousness of her case Robert Z.L. Leonard about largely by the manulacturing of sub- of guilty to those offenses. There were a -that the investigation had disclosed a Bert M. Lytell stantiating evidence to support certain number of taxpayers involved in this la\ liability in excess of $1,000,000 and Glenn Tyron (Kunkel) alleged deductions which had been investigation concerning whom the evi- that consideration must be given to the Jack Hill claimed as ordinary and necessary "busi- dence was not sufficient to warrant criminal question of criminal prosecution. Her atti- Pat Chrisman ness expenses." It was found that Miss prosecution. These cases were disposed of tude then changed completely. Undoubtedly, Eugene Ford Berber had prepared income tax returns by the payment of taxes, penalties and recalling the successful criminal prosecu- liessie Eason far &ut 70 taxpayers, involving approxi- interest and, in a few cases, by the accep- tions of other movie stars, she became visi- Milton Sills mately two hundred case years. tance of offers in compromise of the crimi- bly upset. She left the conference and a few Rod La Ror~pr nal and civil liability. moments afterwards a stenographer called William Haines The remaining cases concerned those the office of the Chief, Intelligence Unit, taxpayers who apparently did not have full and stated that there was a woman, appar-

FOR OFFICIAL USE ONLY ently deranged, in the ladies' roam, saying As a consequence, an assessment orandum fmm an attorney in response to the principal officers of the corporation. that she owed a million dollars in taxes. of taxes and penalties amounting to her request for material which would be The total of tax, penalties and interest When Marion Davies returned to the $1,174,627 resulted, all of which was suitable for a news article. was established at $925,004 and was paid. conference soon afterwards, it was evident paid to the government. An investigation was immediately com- The individuals responsible for this Lraud that she no longer considered the under- menced, and even further fraud was dis- could not be criminally prosecuted statement of income a frivolous matter. closed above the concealment reported hy because uf the bar set up by the statute of She used powerful influence i? an effort to Tax Evasion Cases Involving the woman. This investigation resulted in limitations. escape her liability but finally paid addi- the payment of $2,631,000 to the Bureau tional taxes and penalties in excess of Prominent Individuals and of Internal Revenue. The fraud in this case Teapot Dome Carer was so well concealed that it is certain three quarters of a million dollars. - Business Concerns In the so-called Teapot Dome cases, total none of this amount would have been dis- Since the investigation of this tax ease, taxes of $6,822,953 were assessed. Of this covered or collected had it not been for the frequent editorials and news items have While numerous tax evasion cases such amount, $5,669,792 has been collected. young lady reporter. She received a sub- appeared in the Hearst papers continually as those which have been outlined have The pmportian representing uncollected stantial reward under the moiety provision criticizing the Bureau of Internal Revenue. resulted in criminal prosecution, by far the taxes is now in litigation before the Board of Internal Revenue laws. The publicity, obviously, was inspired by greater percentage are civil cases handled of Tax Appeals. the Davies' case, as the evidence devel- administratively by the Commissioner or During 1922, Secretary Fall of the Interior "Gold Brick" Case oped during the investigatiun indicated by the Board of Tax Appeals. Department, leased oil pmperty known as that she received substantial payments These civil cases result in the assess- The American Optical Company under- "Teapot Dame" to a corpo~ationowned through certain corporations contmlled ment and ultimate collection of taxes and stated its inventory by deliberately moving entirely by Hany E Sinclair. About the same by Hearst. fraud penalties on the basis of evidence of the decimal point one space to the left. time, Fall leased another oil field to a corpo- In this connection Arthur Brisbane, fraud established by agents of the Unit. Investigation developed that, in abtain- nltion conlmlled by Edward L. Doheny. editor of the Hearst newspapers and the Many business concerns, presumed to be ing gold for use in the business, it was the A senatorial investigation ensued. It highest salaried editor in the United States reputable athenvise, have used ingenious practice to purchase gold pieces. These was disclosed that Doheny had given Fall likewise was investigated, resulting in means of endeavoring to evade the pay- were melted, an alloy was added by the $100,000 in cash prior to the granting the payment by him of appmximately ment of taxes. Evidence of this character company and then distributed to the of the lease to his corporation and that $250,000. has not always been sufficient to justify a departments as needed. Naturally, much Sinclair had given Fall $25,000 in Liberty conclusion that successful prosecution can scrap accumulated fmm borings, sweep- Bonds sometime after the granting of the Charlie Chaplin be had, but it has sufficed to enable the ings, gold dust and defective parts. This Teapot Dome lease. The first tax evasion case against a promi- Bureau to collect the taxes evaded and, scrap was carefully collected and returned The lelraes accordingly were cancelled. nent motion picture actor concerned in addition, the penalties and interest. to the gold department of the company Shortly afterward, Hany M. Blackmer, Charlie Chaplin. Chaplin evaded income Fullowing are cases of this kind. where it was melted into bricks of appmxi- President of the Midwest Refining taxes by claiming that a partnership mately one thousand ounces each. Company, and James E. O'Neil, President existed between himself and his brother, Woman Reporter Reveals Fraud The fraudulent scheme of segregating of the Prairie Oil and Gas Company, left this country and went to France. Sydney Chaplin. A young woman employed aa a freelance and holding a portion of the scrap gold was Investigation, however, established the newspaper writer once called the New devised. The gold bricks into which it was It was developed later that substantial profits had been realized by Blackmer, fact that all of the partnership earnings York office of the Intelligence Unit. A melted were kept in a special vault and O'Neil and Sinelair. Robert W. Stewart, which were credted to Sydney Chaplin memorandum which she carried outlined later sold to refineries and the inventory found their way into the possession of the concealment of approximately accordingly understated. The proceeds President of the Standard Oil Company of Charlie Chaplin. $4,000,000 in income by the Atlantic Gulf were placed in a separate fund and distrib- Indiana, and Carl H. Pfonheimer, a stuck- broker fmm New York City, who had been and West Indies Steamship Company. She uted secretly to three brothers, Chewning, explained that she had obtained the mem- J. Chaney and Albert S. Wells, who were

FOR OFFICIAL USE ONLY FOI OFFICIAL USE ONLY associated with Rlackmer in a large stock lines, filling stations and refuleries. But which resulted in the determination uf payer's accountants for conspiring to pool transaction, also had made profits in it was lacking in oil praduction. additional taxes and penalties in the defraud the United States. Julian had all his available capital tied large sums. amount of $1,829,270. The case is now being considered. The up in the corporation and was unable to The evidence as to Pfonheinleis connec- E.M. Smith is the principal stockholder Revenue Agent, of courre, was removed tion wm developed by special agents of the bo~mwmoney to continue operations. At of the E.M. Smith Company, manufacturers from the Service. The taxpayer, through Intelligence Unit. When he realized that his that point, S.C. Lewis became interested of oil well equipment, and is likewise a counsel, had expressed a willingness to and agreed to reimburse Julian for the pmfits would undoubtedlx be discovered, he large investor and promoter in oil pmper- stipulate a deficiency of $1,700,000 but amount of Julian's investment in the corpo- made payment of $1,393,910 to cover addi- ties located in California and Texas. steps are being taken to collect the total tional taxes and penalties due on his 1921 ration in return for control of the company. Thr fraud in this case consisted primar- tax liability. and 1922 returns. Upon assuming control, Lewis and his ily of diversions of proceeds from sales by Blackmer's tax liability was found to associate, Jacob Berman, alias Jack the company. These sales aggregated sub- William Fox, Movie Magnate be much greater than Pforzheimer's and, Rennett, both of whom were without funds stantial sums. They totaled in excess of William Fox, internationally recognized as after twelve years, he paid a total of at the time, started to overissue the stock 51,058,344 for one of the years under onc of the magnates of the motion picture $3,669,784 in settlement of his tax of the corporation. A sufficient amount investigation. It was drvelop~dalso that industly, is another tax evader who has liability. Sinclair, Stewart and O'Nd of the stock was sold to pay off Julian. A twenty-six relatives or employees of E.M. been scrutinized by the Intelligence Unit. denied that they personally benefited. stock pool, known as the "Million Dollar Smith conspired with him for the purpose A special agent was called into the Huwevel; as a matter of fact, they had Pool," was formed. Bankers and other of evasion of income taxes and considera- case to cooperate with the Office of the made restitutions to their companies only wealthy individuals in and around Las tion has been given to the question of Assistanl General Counsel in preparing after the Senate Investigation Committee hgeles participated. A million dollars' indicting these individuals also. had made the discovery of their secret worth of stock was purchased by the pod the case for trial before the Board of Tax Appeals, after an examination by revenue pmhl a practical certainty. and held far a period of 40 days. Then, it Rubel Corporation Fraud Additional taxes, together with the fraud was paid off with a handsome profit to the agents had discluscd an additional tax penalty amounting to $1,331,229, were participating members. The Rubel Coal and Ice Corporation of liability of $1,628,000 for the years 1929 assessed against Sinclair, Stewart and Subsequently, other puols were organized. Brooklyn, New York, affords an illustration and 1930. O'Neil and are now in litigation. In reality they were fur the purpose of tak- of consistent evasion of taxes for a period Following the special agent's investiga- Compromise offers were submitted but ing overissued stock off the market. This of several years before disclosure. The tion for the Assistant General Counsel, the have been rejected by the Secretary of the continued until the crash of the corporation period covered by the fraud undoubtedly deficiency for those two years, inclusive Treasury who directed that the cases he and the overissue was then discovered. was lengthened because of collusion with of penalties, was increased to $3,700,000. hrnught before the board of Tax Appeals A general investigation uf this case the taxpayer by the Revenue Agent who Criminal prosecution as to William Fox unless payment was made in full. involved approximately 250 individuals, had examined the returns of this corpora- and his accountant was recommended partnerships and corporations, and a tion for several years. and now is being considered. Julian Company Stock Fraud total additional tax and penalties of The investigation was most difficult and $8,758,670. unusually complicated because of fraudu- Ringling Brothem Tax Fraud The investigation nf the Julian Petmleum lent overstatements of deductions for Corporation is an outstanding case on the A case recently investigated by the Intelli- The E.M. Smith Company Case depreciation. In due course, additional gence Unit involving Ringling Brothers- Pacific Coast. taxes and penalties totaling $3,900,000 Bamum and Bailey Combined Shows, This corporation was organized by At the present timc criminal prosecutions were established. The cost of the investi- Sarasota, Florida, resulted in establishing C.C. Julian, a high-pressure promoter who are pending against E.M.Smith of Los gation approximated $50,000. a tax liability of $4,528,925 far the years built his corporation into a sizeable organi- Angeles, California, and nine other indi- The special agent recommended the 1918 to 1932, also the indictment of six zation. It owned its own storage tank viduals. Indictments were obtained in criminal prosecutiun of Rubel, as well as individuals -John Kelley, former attor- farms, marine loading terminals, pipe February 1936, following an investigation the Revenue Agent and three of the tax- ney for John Ringling; Nathaniel E

FOR OFFICIAL USE ONLY FOR OFFICIAL USE OYLV Rabner, Tax Accountanq Richard Fuehs, John Ringling, who is the only surviving not born fide sales, "losses" were not actual also was indicted for niding and abetting secretary to John Ringling; Ralph Sullivan member of the famous Ringling family, and it was merely a sham to evade taxes. the fraud. and William Blum, fonner employees of appeared as a government witness before Mitchell's practice of escaping tax lia- The understatement of income related to the Bureau of Internal Revenue; and the Grand Jury at the time indictments bility by means of claiming fictitious losses failure to include pmfit from short sales in Charles D.M. Creer, Internal Revenue were obtained. was fimt hmught to light when he appeared the stock market. The total tax liability was Agent. These alleged 93 oven acts hy which as a witness at a hearing before the Senate established at $1,276,613. Canadian The Grand Jury will consider this case the defendants defrauded the government Banking and Currency Committee. There, relatives of Cutten who also had pmfited further during the latter part of this year, occurred between July 1,1917, and July it was developed, through questioning by in stock transactions in this country but and it is expected that indictments will he 24, 1932. The case is now awaiting trial. Ferdinand Peeora, counsel far the commit- failed to pay income taxes were likewise returned against additional defendants. tee, that Mitchell Lad claimed losses on investigated. The fraud in this case was based on false Charles E. Mitchell, Banker his retums as a result of the alleged sales Criminal prosecution in this case was bwkkeeping records wherein fictitious pur- of securities to a "relative." It later devel- terminated hy the recent death of Mr. The tax case of Charles E. Mitchell, chases of animals and circus equipment oped, when the investigation was com- Cutten. However, the investigation is being former Chairman of the Board of Directors were shown in their inventories. Hundreds menced, that the "relative" was his wife. continued in order to effect collection of of the National City Bank and a former of thousands of dollus of fictitious assets The practice of evading income taxes by the tax liability. director of the Federal Reserve Bank of were added to the appreciation schedules. this means had developed to such an extent New York, caused considerable newspaper These assets were not purchased and were that it very seriously affected collection of 1. Morris Wampler, publicity heeause it was the first criminal never in existence. the revenue. Persons of wealth, having sub- Washington Attorney pmsecution of a "stock loss'' case, and Fictitious claims were also made on stantial incomes, would purport to sell further because it involved such a promi- T. Morria Wampler, attorney, was engaged the astounding claim that there had been sufficient securities to establish fictitious nent individual. in the practice of criminal law at Wash- abandoned 48 elephants, 5 +$r&es, 8 losses in amounts approximating their tax- The term "stock Loss" was used to des- ington, D.C. for several years. One of his tigers, 9 zebras, 23 camels, 23 lions and able income, thus eliminating tax liability. ignate those cases in which a taxpayer had clients was Edward B. Dean, Sr, an aged, 665 horses. The Mitchell case hrought about an a taxable income and sought to escape tax wealthy and eccentric individual. Dean The inventories listed a quantity of prop- intensive drive by the Bureau throughout liability by claiming deductions through had been sued on several occasions hy erty allegedly used in connection with hip- the country whereby millions of dollars of the purported sales of securities, usually women who charged that he had assaulted podmme spectacles, and it was represented revenue were added to collections heeause transactions between the taxpayer and them. Although Wampler was retained to that such pmperty had been owned by the of investigations resulting in the setting immediate memberj of his family and a act as Dean's attorney in these cases, he circus in 1918 and the valuation was listed aside of such improper deductions. subsequent "resale." evolved a blackmailing scheme whereby at approximately $1,850,000.The investi- The investigation and exposure of the Such transactions were executed with large settlements could be obtained fmm gation eslablished that the spectacles for evasion methods employed by this tax- considerable legal formality, for the dual Dean through "frame-ups." which the pmperty was used had not heen payer were largely responsible for the pas- purpose of attempting to pmve a legal sate Associated with Wampler in this con- produced subsequent to the year 1893 and sage of additional income tax legislation and, at the same time, retain equitable spiracy were Norman Bowles, a disbarred that practically all of such property had which protects the government revenues ownership. The determination to be made attorney, and Abe Lapin, a Bootlegger, who hen out of existence since 1917. from such acts of evasion. in such cases was whether the transaction procured the women. The women were It was disclosed that during the years constituted a bona fide sale. Christine Rock, Beatrice Cornelius, Lillian 1918 to 1932, inclusive, the partners with- Arthur W. Cutten, GmitiTrder In the Mitchell case, the purpaned Belasco, Marie Lowe and others. Following drew from the circus $10,368,000. This sales of securities whereby "losses" of Arthur W. Cutten, grain trader, Chicago, the plan of Wampler and Bowles, these amount exceeds by $6,000,000 the net $2,872,305 and $l,86O,WO were Caudu- Illinais, was indicted during April 1936, women would call to see Dean nt his apart- income shown by the taxpayers on their lently claimed on his 1929 and 1930 charged with evasion of taxes for the ment under various ruses and later would returns for that period. retums, consisted of transactions between years 1929, 1930 and 1933. William bring suit claiming that they had been Mitchell and his wife. The transactions were E. Gatewood, a farmer Revenue Agent, criminally assaulted by Dean.

FOR OFrlClAl USE ONLV FOR OFFICIAL USE ONLV The women were represented by attor- restore order to the then demoralized oil chased oil with cash and to whom they had has been completed with recommendations neys who acted upon the instructions of induslry. Texas, Oklahoma and Louisiana made cash sales of oil and gasoline, as for prosecution based upon this evidence, Bawles; while Wampler on the other hand passed legislation by which regulatory checks drawn to cash, and a statement to which has heen substantiated and which would advise Dean to settle the cases. bodies in each state were authorized to the effect that the transactions, because of they have admitted. It was also developed Upon Wampler's suggestion, Dean would regulate production of wells within their heir nature, were requited to be handled in that he had accumulated a fortune in pay over large sums of money to him with jurisdiction. currency would be sufficient evidence for excess of $5,000,000 within s few years instructions la obtain seulements. During This action brought about an increase the Bureau of Internal Revenue to approve through his illegal operations. the years 1930 and 1931, Dean was swin- in the price of crude oil from 10 cents a their deteminatinn of net income. So it is Many other such cases investigated by dled out of more than $100,000. The harrel to an average of $1.00 per barrel. not sbnge that in many instances the pro- the Unit are of equal interest insofar as the women who were involved received For example, in the East Texas fields there ceeds of these checks were not used to pur- extent of operation and the unique meth- only nominal amounts. In one instance, are approximately 23,000 producing oil chase 'Bot" ail, hut instead were invested ods of concealing income from "hot" oil Dean paid $35,000 to settle the case wells, some of which have a daily capacity in permanent assets; likewise, it was dis- and gasoline are concerned. of Christine Rock. Only $1,500 of that of 25,000 barrels each, but are limited to covered that all sales were not recorded or A review of the reports of several of the amount was paid to her. The balance was an allowed daily production of 40 barrels the cash receipts deposited in their regular completed cases of the considerable num- retained by Wampler, who paid Bowles and per well. bank accounts. There is also evidence of her now under active investigation by Lapin a small share for their part in the This situation led to the production of other fraudulent practices such as fictitious special agents shows that (1) five of the "frame-up." The setllements with the other excess or "hot" oil by many independent salaries, padded depreciation, and unwar- individuals have already been indicted; women were similar. operators, some of whom, seeking the ranted and fictitious reductions of invento- (2) criminal prosecution has been recom- Wampler did not report any of this fullest possible profit, purchased, leased ries all with the knowledge and assistance mended aglnst a number of others, includ- income an his returns. It was established or built refineries and set up schemes for of this accountant. ing the accountant and (3) numcmus that his col~ectincome for the years 1930 evading the State and Federal gasoline Completed investigations show that, in taxpayers have confessed their tax evasion and 1931 was $49,772 and $100,621. He taxes, which, in their aggregate, were more one case, an individual operated several and have stated that they would enter pleas had reported but 819.103 and $40,325 for than the basic cost of gasoline at the refineries in fictitious names, and from of guilty when indicted and would pay the those years. respectively. refinery. They were thus able, hy evading May 1932 to October 1934, approximately taxes, penalties and interest when notified Total additional taxes and penalties in the gasoline tax, to enjoy more than 100% 7,500,000 gallons of "hot" gasoline were of the amount. The reports also reveal that the amount of $32,985 were established. profit on the gasoline in addition to the refined. On this excess pmduction neither criminal pmsecutions will be recommended Wampler was indicted for tax evasion and profits on the crude oil. These facilities the excise nor income taxes were paid to in a number of the other cases and that on December 27,1933, sentenced to serve likewise enabled them to take financial the Federal Government. The producers very substantial mounts of taxes, penalties eighteen months in the Atlanta penitentiay advantage of illegal pmducers and thieves also were evading the State taxes on oil and interest will he collected. and to pay a fine of $10,000. who had no refining and marketing outlets. and gasoline. From a number of the more important One of the individuals under investiga- 'Hot" Oil Cases cases now being actively investigated hy tion as a "hot" oil operator was killed in Women Tax Evaders Involved special agents on the Intelligence Unit, an airplane accident during the early part During recent years, the larger panion of some interesting facts have come to light, of 1936. Before the airplane crashed, he in Outstanding Fraud Cases the ail production in the United States for example: threw overboard a "hlack book" containing has been centered in the States of Texas, One accountant who prepared several of a record in "code" of his transactions in Cases involving tax evnsions by women Oklahoma and Louisiana. The uncon- the income tax returns, also supervised the "hot" oil. include those of Mrs. Sarah Smith Scollard trolled production in these fields resulted bookkeeping and accounting records of The entries, when decoded, showed of Chicago and Seattle; Mrs. Lloyd M. in a "price war," which caused the price of these operators. Testimony has been dealings with numerous oil operators to the Rewitt, alia~Reverend Ethel Duncan, crude oil tu drop as low as 10 cents a har- received that the accountant advised that extent of hundreds of thousands of dollars. of Long Beach, California; and Bess rel. Then followed Tri-States' action to they need not show hmwhom they pur- The investigation of hvo of these parties Meredyth of Hollywood. conserve their natural resources and to

54 FOR OFFICIAL USE ONLY FOR OFFICIAL USE OILY "Hetty Green" Shortly after the investigation began, she believe her enterprises were solely for Aliens Seek To Evade of LaSalle Street disappeared and all traces of her fortune charitable and religious purposes, investi- estimated at $5,000,000 likewise van- gation developed that she and her hus- Taxes - Treasury Recovers Mrs. Sarah Smith ScoIlard was known as ished. Reese Brown died shortly after her band, associated with her in the alleged Many Millions in this the Hetty Green of LaSalk Street. She had disappearance. During 1934, the widow of "religious activities," spent approximately a very colorful career, having mamed Hecla Class of Tax Dodging Reese Brown appeared in court at Yakima, $17,000 during one year for luxuries and "Jim Smith," mining promotes in a Chicago Washington, with a package wrapped in high living. hospital a few hours ptior to his death. The records reveal that numerous resi- crumpled paper. When Mrs. Brown took During the same year, the total deposits She acquired all of his estate, the most dents of foreign countries have made futile the stand to testify, she opened the pack- of Mr. and Mrs. Prewitt in their penonal valuable of which was stock in the Hecla attempts to perpetrate frauds on the rev- age and exhibited a silver urn which bare bank accuunts were $105,953 while the Mining Company. She was very shrewd hut enue, in different kinds of schemes. the caption: "Sarah E. Smith - Died at total deposits in the church hank accounts eccentric. On one occasion she withdrew Some instances of this kind, involving Montreal July 24, 1932." The urn, she were only $11,871. They failed to Me $8,800,000 in cash, securities and jewelry large sums in taxes, are briefly described. claimed, contained the ashes of Sarah income tax returns and the investigation fmm safe-deposit boxes in a Chicago hank Smith Scollard. established a tax liability of $1,703. and twk them in a valise aboard a train to Two British Subjects Miss With this development a search through- Both were indicted for failure to file Hollywoad, California. She was known to the Boat - The Treasury Wins out the United States was made to locate returns and evasion of income taxes and have carried large sums of currency on her assets that could he applied to the tax lia- the cases are now pending trial. Apparently An Internal Revenue Auditor learned, dur- penon at all times, usually bills in denom- hilily of Sarah Smith Scollard and Reese the "divine power" which "Reverend Ethel ing the course of an income tax examina- inations of 11,000, $5,000 and $10,000 B. Brown. In one instance, a safe-deposit Duncan" claimed to possess was not of any tion of the Kerr Steamship Company, that sewn in her clothing. box located at Kansas City, Missouri, con- benefit to her in foreseeing that Government the British owners, H.E Kerr and A.E. One Reese B. Bmwn, reputed to be taining $53,540, was seized. Other assets agents would eventually catch up with her. Clegg, were about to sell their holdings to addicted to sharp and unscrupulous prac- totaling $600,000 were located during this the Hamiman Company of New York City tices, became acquainted with Mrs. Smith nationwide search. Bess Meredyth - Scenario Writer at a net profit of $4,200,000. when she was ahout seventy years of age. The British owners, it was learned, had When she was warned by her bankers that Bess Meredyth of Hollywood, California, Fortune Winning "Apostle" planned to evade the payment of income Brown bore an unsavory reputation, Mrs. attempted to evade the tax liahility on taxes on this profit by having the purchaser Smith hecame very anmand closed her Mrs. Lloyd M. Prewitt, alias Reverend her earnings as a scenario hliter. pay them in currency a half hour hefore Ethel Duncan, established in Long The fraud was discovered and the account with the bmk by withdrawing they were to sail for Europe. Special agents Beach, California, "The Church of the $726,000. Bureau of Internal Revenue collected were at the hank when this fortune in cash Special agents had considerable Revelations" where fortune-telling semces fraud penalties in addition to the correct was delivered. As soon as the money had were held. She claimed to he endowed difficulty in locating Sarah Smith Scollard tax liability. been placed in suitcases preparatory to in order to obtain her testimony relative to with the "divine gift" which enabled her She was indicted, pleaded guilty and boarding the boat, the special agents seized to see into the past, present and future. her financial dealings with Brawn. Both fined. In addition, she paid the tax, 50- the entire amount. This seizure was based were under investigation by the Unit. Later she founded the "First Church of the percent fraud penalties and interest on the on assessments against the two individuals Apparently she then reabzed, for the first Apostles, Inc.," also the "Good Samaritan amounts evaded. totaling in excess of $3,000,000. The cur- Relief, Inc." time, that Bmwn had fraudulently obtained rency contained in the suitcases, amounting Using the name of Reverend Ethel control of her immense fortune; that he to more than $4,000,000, was placed in a Duncan, she was very successful in ohtain- had outwitted her by representations that vault pending court action and approxi- ing funds for these two enterprises. She he would act as her huainess adviser and mately $2,200,000 was eventually estab- also made a substantial income as a for- protect her from lawsuits which were then lished as a tax liability and placed in the tune teller. Although she led the public to pending. Treasury. Zelik Josefowitz - same night, telegaphic notice was sent to Clayton-Kennedy's Kreuger, "Swedish Match King" Gold Hoarder New York City advising of the jeopardy Promotion Swindle When Ivan Kreugrr committed suicide assessment and directing the filing of liens. A recent case which received considerable Colonel Kenneth E. Clayton-Kennedy was in Paris, France, on March 12, 1932, At the opening of business the following publicity is that of Zelik Josefowitz of active in the United States during 1927 the story of the collapse of his financial Paris, France, and Zurich, Switzerland. morning, the liens, which had been pre- and 1928 in corinection with the "empire" was then revealed. Kneuger and pared during the night, were filed against It was developed that Josefowita had been promotion of shale-oil pmperties in New his associale, Anders Jordahl, were con- the accounts. SufIicient assets were seized hoarding approximately $344,000 of gold Brunswick. He organized an American struction engineers. Their many engineer- to guarantee the payment of what was currency in violation of law. The investiga- corporation as well ss a Canadian corpora- ing activities included employment on the believed to be the tax liability. The ques- tion developed further that Josefowitz had lion to conduct his enterprise. As usual in construction of the Flatiron Building in tion as to the actual amount of tax due is substantial financial transactions in this such swindles, he held out false pmmises New York City in 1902. They handled now the subject of inquiry. country in brokerage and banking circles of wealth to American investors. Investors engineering projects throughout the in his awn name and those of his immedi- Josefowitz, it developed, had cabled his lost their money and only Kennedy Continent and South Africa, operating New Yark banks and brokers to transfer ate family. benefited. as the Xreuger and Toll Cnnstruction his assets to foreign aaecounts. But his When the information was obtained by It was learned that Kennedy was in this Company instructions were received a few minutes the Intelligence Unit 8s to the business country during 19'31 in connection with As they prospered, they became promot- after the liens were filed. A slight delay in activities of Josefowitz in this country, it other schemes, likewise of a promotional ers. After the World W~Tthey padually was necessary to take swift acliun. The this case would have resulted in the loss nature. He was located and questioned acquired match companies. Kreuger's of several hundred thousand dollars to the Bureau had to obtain a jeopardy assess- concerning his tax liability on the income "empire" in that industry was built up Government. ment and file liens on his hank and bro- which he received as a president of the thmugh control of 127 match factories kerage accounts, as well as safe-deposit American company operating during and sales companies in 52 countries. boxes, before the assets could be trans- 1927 and 1928, and his earnings from His scheme was to make loans to the ferred to a foreign country. Josefowitz had Investigations of Offers the shale-oil venture during those years. govenments as an indirect means of notice that he was under investigation for He insisted that he had reported his establishing monopolies in the match busi- in Compromise Result in illegally hoarding gold, and it was realized income fmm all sources on the income tax ness. Cooperative investigation pnrtici- that he might cable instructions to close Detecting Concealment return, which he claimed to have fded with pted in by the Intelligence Unit has out his accounts al any moment. the Canadian Government. It was learned, resulted in the determination of a total tax of Assets At the time steps were taken to obtain the however, that he had given a similar expla- liability of $3,712,679. summary assessmcnt, several special agents nation to the Canadian authorities. They AndeffiJordabl was Kreuger's closest One of the duties of the Intelligence Unit were assigned to the case. Immediate and is to make investigations of offers in com- also were making a tax investigation can- business associate and agent in this coun- simultweoua investigations were made of cerning the New Brunswick Corpor~tion tly. A jeopardy assessment was made in promise tendered by taxpayers in eases bmkerage and bank accounts at orgmiza- and were told by him that he had filed a the Jorhahl case and a lien served on a where there are indications that assets lions with whom Joseforvltz had financial return of all income in the United States.. Jeney City, New Jersey, bank to attach have been concealed or when there is evi- dealings. Within a few hours after the inves- Kennedy was indicted at Baltimore, property in a safe-deposit box carried in dence of fraud in connection with the sub- tigation was commenced, recommendation mission of the compromise offer. Maryland. He was found guilty and sen- his wife's name. When the box was opened was made for a jeopardy assessment against Frequently it has developed that a tax- tenced by the court to pay a fine of it was found tu contain approximately Josefowitz and members of his family in the 810,000. $1,000,000in securities. Investigation payer has aubmitted an offer predicated total amount of $999,802. There was no now is bring made to determine owner- upon insolvency when, in fact, he had record of ta* returns having been Ned by ship. The tax cases are pending before the sufficient assets to pay the total tax liabil- these individuals in this country. Board of Tax Appeals. ity due. The usual practice of a taxpayer Commissioner Helvering authorized the who endeavors to understate his net worth immediate assessment and, at 9 p.m. the ia to convert assets into cash, conceal the

FOR OFFICIAL USE OWL7 59 and recommended prosecution of Isidor, established that the alleged p~cticewas, currency and fail to make any mention of Terry D~gganand Frank lake, notorious Samuel and David Reinhard, president, in fact, carried on for several years. it on the balance sheet submitted with his Chicngo racketeers, also attempted to treasurer and secretary, respectively, and The result was that the additional offer. It happens also that assets of various defraud the government hy filing false offers also their three accountants. admission taxes and paid hy the types are omitted fmm the taxpayer's in compmmisr. They attempted to lude the Shubert and Erlanger pups were sub- statement uf assets and liabilities. ownership of race horses, an apartment stantially in excess of $100,MM. The most It is the function of the Unit to deter- house, a stack farm and a hotel valued at important development resulting from this mine, hst, what assets,are owned by the 5100.000. They were prosecuted and con- Miscellaneous Tax investigation was that it not only stopped taxpayer with a view to establishing the victed. Dmggan was sentenced to two and Investigations this practice of mulcting theatergoers, but net worth; and, secondly, to determine one-half years and a fine of $5,000, while the pmsecution of the most prominent bro- whether the understatement of net worth Lake received a one and one-half year sen- The Intelligence Unit has been called upon kers caused others, who had been follow- was intentional and therefore fraudulent. tence and was hed $2,500. frequently to make investigations of special ing the same scheme, to pay voluntarily tax cases embracing all classes of taxes the tax liability which they had attempted False Offers by Racketeers Arcadia Knitting Mills, Inc. other than those relating to income tax. to evade. During the Chicago investigations, Ralph An interesting case having to do with Of the total of 9,109 tax investigations Capone, Al Capone'a brother, submitted a offers in compromise is that of the Arcadia by the Intelligence Unit up to June 30, Oleomargarine Cases 51,000 offer in compmmise of his tax lia- Knitting Mills, Inc., of Allentown, New 1936, 442 are classified as investigations Numerous complaints had been received bility of $5,082. He contended that he had York. This concern professed to mnke vol- of special tax cases. that the special tax of 10 cents per pound no assets of any value. He later increased untary disclosure of understated income for on oleomargarine was being evaded by the offer to $2,500. Subsequently he 19'30 and 1931, and offered $225,000 in Theater Ticket Speculators individuals who had flooded the market in increased the offer to $4,065 which was compmmise of the understated tax liability. Theater ticket brokers at New York City certain sections of the country with a prod- the amount of the additional tax, exclusive Commissioner Helvering did not and other principal cities throughout the uct labeled "pure butter," which was. in of penalties or interest. approve of the recommendation of his country monopolized the sale of theater fact, oleomargarine. This was a very Investigation developed that, at the time predecessor and called the matter to the tickets. Their method wU8 to buy choice scheme because the individuals tendered hia &st offer in attention of Secretary Morgenthau, who seats for at box office prices who sald olwmargarine as pure butter compromise in the amount of $1,000, con- instructed that the offer in compromise be and sell these tickets to theatergoers at were able to undersell their competitors tending he had no assets, he, in fact, had a rejected and directed that the Intelligence prices subs~antiall~in excess of the figure and yet make a very substantial profit. bank deposit of $25,236 under the alias of Unit make a thorough investigation. shown on the ticket. lo addition, they col- One of the most persistent violators was James Carter. It was furiher determined The officials of the company objected to lected the admission tax and fraudulently Albert Haddad, who had been a salesman that, on the day of the submission of his the investigation, as they claimed the for- evaded the special tax due the government for an oleomargarine concern for several second offer, he had on deposit in another mer Commissioner of Internal Revenue, on such excess charges. yean. He organized a company during the hank account, in the name of Hany White, before completing his term of office, had Their records were mnnipulated in a ~eriodhe was employed by the oleomar- an amount substantially in excess of his agreed to accept their figures. manner to conceal the fraud. The investiga- garine concern. Without the knowledge of offer. It developed that the alleged voluntary tion of this situation by the Intelligence his employer he sald his company 82,396 He was indicted on the charge of filing disclosure by the Arcadia Knitting Mills was Unit was directed primarily at the bmkem pounds of oleomargarine under false two false offers in compmmise and with false. The actual understatement of income who handled the sale of tickets for the brands with labeling such as "pure failure to pay income taxes due for the was $1,373,792 and $1,421,953 for the Shubert and Erlanger theaten. Investigation creamery butter." years 1922 to 1925, inclusive; was found years 1930 and 1931, respectively. This led to similar conditions in Philadelphia The investigation established that the guilty on all counts and was sentenced to case resulted in a total additional m liabil- and Boston. The prosecutions which ensued blend of "pure creamery butter" contained three years in the penitentiary and hned ity of $493,306. were nationally publicized. The evidence but approximately eight percent of butter, $10,000. The special agent made a detailed the balance of the product consisting of investigation of the fraud in this case

FOR OFFICIAL USE ONLY FOR OFFICIIL USE ONLY oleompine and a small portion of ewk- In one case, it was established that disbarred from practice and 333 were in the Prohihition Service and cases gmw- ing butter the estate tax return was understated by disciplined. Many have been prosecuted. ing out of collusion of such empluyees with Haddsd and his associates were approximately $1,000,000 by the executor Detailed schedules of persom~elinvestiga- law violators. indicted. While awaiting trial, Hilddad for the decedent. The executor had diverted tions supplement this review. started a similar conspiracy to evade the the assets to his individual account. The figures, with respect to ~ersonnel Investigative Work Enlarges tax on oleomargarine by associating him- The who reported this case investigations, relate to direct results. Under New Personnel Policy self with other individuals in New York had advised that the will was forged. Equally important are the indirect results During the past two years, the work d City, operating under a.diffemt scheme. Investigation, however, disclosed that the in maintaining a high standard of charac- the Intelligence Unit has been increased Their plan was to purchase oleomar- fraud consisted of forging the decedent's ter among the employees of the Bureau of geatly because of the present policy garine fmm legitimate dealen and then signature to antedated deeds covering real Internal Revenue. Successful prosecutions requiring that all applicants for responsi- repack [he oleomargarine in cartons estate which were recorded at the Registry fur bribery, for example, have tended to ble positions with the Bureau of Internal marked "Creamery Butter," which they of Deeds within a few days after the dece- afford mom protection to Intend Revenue Kevenue, as well as in certain other sold. This conspiracy was in operation dent's death. employees against dishonest taxpayers and branches of the Treasury Department, only a short time when it was discovered auorneys who w,ould otherwise seek to cor- be investigated. by the Intelligence Unit and Haddad again mpt them. Criminal prosecution or disci- In accordance with this policy, a large was prosecuted. plinary action against employees found to Records of Investigations number of relief workers who were desig- Haddad's manipulations brought him be guilty of wrongdoing has served as a nated for tempormy duty with the Bureau a six-month jail sentence in the firs1 case. of Revenue Personnel, most effective deterrent. of the Internal Revenue were investigated A sentence uf one year and six months Tax Accountants and prior to appointment. Frnm January 1935, and a $5,000 fine was imposed in the Enrolled Attorneys Prohibition Personnel Problems to June 30, 1936, 5,070 investigations uf other case. His associates, except those this class were made. who turned State's evidence, also received On January 16, 1920, within a few months Since the organization of the lntelligencr The character investigatiuns had to jail sentences. after the nrgani~ationof the Intelligence Unit on July 1, 1919, and up to June 30, Unit, the Prohibition Service was estab- bc made as prnmptly as possible because 1936, there have been ha separated for lished. The personnel became a part of the employment was a relief project. Tobacco Tax Evasion cause" from the service of the Bureau of the Bureau of Internal Revenue and so Consequently, the Intelligence Unit worked From time to time, the Intelligence Unit Internal Revenue 1,785 employees as il continued up to April 1, 1927. a1 top speed to accomplish that purpose. hils made drives on tobacco tax violators. result of investigations made by special The establishment of this Service greatly There wcre, of course, numerous rejec- Recently, twenty-five arrests were made as agents. Of that number, 616 employees increased personnel investigations. Many tions. The investigations disclosed, in the result of simultaneous raids an manu- were prosecuted on criminal charges. irrvestigatians of mnjur conspiracy cases, many instances, that certain individuals facturers and retailers of untaxed cige- Applications filed by auorneys and involving collusion between employees did not possess satisfactory character to rettes at New York City. accountants for enrollment with the and violators of the National Rohibition wanant their appointment Lo Internal Treasury Department as tar practitioners Act, were successfully investigated. Kevenue work, even of a temporq nature. Estate Tax Frauds have been investigated by the Intelligence In addition, there was increased work in Dunng the last few months of the pre- Unit from April 1, 1924, to June 30, 1936, ceding fiscal year, this Unit cooperated in There have been several cases relating to connection with investigations of fraud to determine their qu&fications and fitness. against the revenue laws, involving liquor the oral examinations and made character estate tax frauds involving returns filed for A total of 32,886 applications were investi- investigations of 912 applicants for pusi- esktes which intentionally failed to dis- matters. gated and 714 rejections recommended. tions as revenue agents and 66 who sought close all of the decedent's property. These During the period fmrn January 16, The Unit also has investigated 1,142 appointment as special agents; and, in investigations have required detailed 1920, to April 1, 1927, more than 50 per- cases involving &ages against enrolled addition, 854 investigations were made of inquiry in order to establish the extent of cent of the work of the Intelligence Unit attorneys and agents. A total of 181 were individuals under consideratiun for the decedent's prnperty holdings at the was devoted lo investigations of pelsonnd employment as deputy collectors. time of his death.

FOR OFFICIkL USE ONLY 62 FOR OFFICIAL USE ONLY Quickness and thoroughness in this par- and principal owner of the Coastwise The additional taxes disclosed, as a dence relating to the tax liability of ticular class of investigations were neces- Warehouses Incorpornted, New York City, result of the examination of their Spencer and his associates be destroyed snry. Commissioner Helvering and Secretary promptly reparted the solicitation to the clients' returns, amounted to more than upon payment of $160,000. Underwood Morgenthau believed that the addition of Cullector of Internal Revenue at New $1,000,000, exclusive of penalties. The insisted that the money be produced field personnel would expedite tax collec- York City. disclosure of this fraud was highly puhli- before the Bureau hles relating to the tions, especially in cases then pending. The Intelligence Unit was called upon to cized. It served to put dishonest accoun- cases would he exhibited. It was their purpose to m+ the work investigate the matter. This Unit then was tants, Internal Revenue employees and The special agents proceeded carefully. of the Bureau approach a current basis. in the process of organization. There was taxpayers on notice that there had been At the time set to "pay" the $160,000, Enlargement of the field force was accam- only one Post Office Inspector other than created an organization with which they Underwood produced the original returns plished as speedily as possible. The result the Chief of the Unit, whose transfer to the would have to contend in any attcn~pted of Spencer and his associates. Underwuod was the clearance of many pending cases, Intelligence Unit had been ekcted. This fraudulent practices. was then arrested, and made a complete quicker dispatch of revenue business in Inspector was the entire field force of the confession. He stated that Rickmeier was the field and a substantial increase in tax Unit, operating under the direction of the Tax "Expert" and Bureau the Bureau employee with whom he had collections. Chief at the time this case was assigned to Employee in Million Dollar conspired and that he had agreed to pay the Unit for investigation. Within a few Tax Case Rickmeier $40,000 of the amount to he Unit's First Casa, 17 Years Ago, weeks, and prior to completion of the inves- received by him. Another case developed in the first stage Netted Government $1,000,000 tigation, he was assisted by others who were Underwoud and Rickmeier werr indicted as pmmptly as possible transferred from the of the Unit's organization, set the pare for The files of the Intelligence Unit show that on the charge of en~beaalin~government Post Office Inspection Service. other large cases that followed. the first investigation, "S.I.No.1," related documents. They pleaded guilty, and each The stage was set for the apprehension Gamett Underwood was a tax practitioner to a conspiracy on the part of two Certified wu sentenced to serve a term of twenty- of the accountants and the Revenue at Washington, D.C. Earl G. Rickmeier was Public Accountants doing business under one months in the Federal penitenliary at Inspector. When the latter and one of the Assistant Chief of the Personnel Section the trade name of the Sterling Accounting Atlanta. accountants left the taxpayer's office, they of the Income Tax Unit at the time. They and Audit Company, New York City, with were taken into custody by the special attempted to obtain $160,000 from one Morris Rosenhlum, an Internal Revenue Collusion Uncovered in agents. They found $2,000 on the Revenue Spencer, a wealthy oil operator, on represen- Inspector. Other Investigations Inspector, the money having been marked tations that they would dcstroy all evidence It was the practice to call on individuals far identification earlier in the day and relating to a proposed assessment of taxes The files of the Unit contain numerous and business concerns having substantial then returned to he taxpayer for use in against Spencer and his aasmiate, in excess reports relative to investigations similar to incomes and suggest to them that they par- making the payments. of $l,OW,000. the Underwood case. ticipate in a "foolpmof" scheme to defraud As a pat of a prearranged plan, the At the time this information was first In each case of suspected cullusion, it the Government of taxes. The fee which files of the Sterling Accounting and Audit obtained, Underwood was known as the was necessary to map out the investigative they asked was set at 20 percent of the Company were seized. Examination dis- man who was handling the negotiations pmcedure designed to bring hutthe amount of taxes defrauded. ulwed that the defendants had prepared from the outside hut the identity of the apprehension of the wmngduers, according The plan was a deliberate fraud and the income tax returns of 115 hms and employee with whom he was dealing in to the facts and peculiar situation then consisted of falsifying and destroying individuals. Each of these cases was the Bureau of Internal Revenue was not presented by each specific case. In most records. The lisl~onrstInternal Revcnue investigated very carefully. In almost every known. It was accordingly an;mged that a cases, negotiations were conducted by inspector's part in the conspiracy was to instance, substantial amounts of additional special agent would represent himself to some outside individual who, as a rule, make the official examination of the fraud- taxes were found to he due. It was clear Underwood as Spencer's attorney for the represented that he had contact with a ulent mturn, report superficial changes that the conspirators had followed the purpose of developing the infomation and trusted Bureau empluyee whose identity, and otherwise accept the return as liled. same plan of defrauding the government of evidence desired. Negotiations ensued of course, would not he divulged. One of the taxpayers apprwached by taxes throughout their entire clientele. with Underwood ostensibly far the purpose A vital phase of the investigation, of the group, Adolph Pricken, Vice President of following out his proposal that all evi- course, is to establish the identity of the

FOR OFFICIAL UEE ONLY Bureau of Internal Revenue, who was hriefs and communications to the Bureau, Bureau employee. It is possible that the representations to McCarter, at the time he recently removed from the Service for tax insisting that the claim had, in fact, been same employee might he dealing with sev- solicited the ease, that he could guarantee fraud collusion. Evidence showed that he filed. On one occasion, while at the eral other outsiders. In order to accam- a very substantial reduction of a plupased conspired with Guy S. Burtis, a former Bureau, he requested and obtained per- plish this end, protracted negotiations additional assessment of $149.000. official of the N.R.A., in an effort to "W mission to inspect the assembled case of have frequently heen necessary. The "out- Mr. McCarter reported the mat- the tax case of the American Mining the taxpayer in the presence of a Bureau side" party conducting the negotiations, ter to Secretary Morgenthau, who directed Company, Denver, Colorado, and reduce employee in a futile search for the claim. with a view to "fixing" a case, would usu- the Intelligence Unit to make an immedi- a proposed additional assessment of Several weeks afterwards he again ally exercise the highest degree of care in ate investigation. Mr. McCarter actively $202,000 by at least half that sum. They called at the Bureau tu look at the files in protecting the identity of the Bureau "con- cooperated in the investigation. were indicted in March 1936 and are now another case. Then, he asked to re-examine tact." Naturally, it would he highly impor- At the time of McElhill's negotiations with awaiting trial. the files of the first case in which he had tant to the "outsider" that the en~ployee's McCmtel; it was learned that the former, in insisted a claim had been filed. At that identity remain a secret in order that tin, waj communicating with Hardgrove at Tax Practitioners Caught in time he culled the attention of the Bureau the Bureau and at Hardgrove's residence in fraudulent negotiations might he carried Forgery and Other Crimes employee to the fact that he had found a an with other taxpayers. Washington concerning his conference with carbon copy of a report relating to an McCarter, and that his negotiations also In addition tu cases of collusion of Bureau alleged "conference." He insisted that this included Nelson. Both Bureau employees employees with "outsiders," there have Suppression of Collusion confirmed his contention that a claim had Strengthened Morale of were carrying on similar practices with heen other instances where the "outsider" actually been filed in the case. Search of other tax practitioners, in addition to their acted independently in his efforts to Bureau Personnel this same file later disclosed such a claim. improper dealings with McElhill. defraud the Government. Late in 1935, John W. Hardgrove, Assis- Suspicious circumstances relating to Secretary Morgenthau kept in close As an illustration of this kind of tant Chief Conferee in the Income Tax other cases in which Clark appeared as touch with this investigation, and it was "practitioner racket," an ingenious type Unit; Henning R. Nelson, a Bureau the representative of the taxpayer resulted through his efforts in personally contacting of fraud which may he cited involved Auditor; and Frank B. McEUlill, a farmer in an investigation by the Unit. It was the Attonley General and the U.S. District Earl S. Clark, a Certified Public Bureau employee, who resigned during developed that the alleged "conference Attomey thal the case was brought prompt- Accountant and Chairman of the Rhode 1922 to engage in business as a tux practi- report" which Clark "discovered" and the ly to trial. This case has had a uost whole- laland State Board of Examiners of tioneq at New York City, were prosecuted claim were prepared by himself and were some effect un the morale of the entire Certified Public Accountants. He was far conspiring to dekaud the government. forgeries which had been inserted in the Rurrau personnel. also treasurer of a national society of file by himself while the Bureau employee All three were found guilty and each Certified Public Accountants and was was sentenced to serve fmm four months to was off guard. Associate Reviewer Removed enrolled to practice as an agent before Evidence to prove this charge was vely two years in jail. The evidence established the Treasury Department. The files of the Bureau of Internal diflicult to obtain for the reason that the that McElhill made reprrsentations to tax- Clark made representations to the typing on the report was not that of any of payers that he was in a position to ohtain Revenue contain numerous case reports Bureau that a claim for tax refund had tax relating to employees who have heen the typewriters at Clark's office. Inquiry confidential informatiun relative to heen filed for approximately $100,000 hy cases. He claimed that he could effect detected in ingenious schemes to defraud among concerns renting typewriters in the one of his clients. It was his contention prompt and favorable srulements because the government of taxes through conspira- City of Pmvidence developed the informa- that this claim had been filed within the tion that Clark had rented a machine for a uf his cunnections with Bureau officials at cies with outsiders. The most carefully time provided by statute; and, if his repre- brief period just a few days before his visit Washinglon, D.C. conceived schemes, however, have left sentations could be proven to he correct to the Bureau. This typewriter was loeated The case which brought about the apprc- their usual "telltdr" tracer uf guilt which the claim would, of necessity, be allowed. and examination showed it to he the very hcnsion of these three individuals involved cause suspicion, leading to investigation Search in the Bureau and in the field machine used in the typing of the papers the tax liability of Thomas M. McCartrtr, and exposure. offices, however, failed to produce any uf There is the case of Wmea Heap, inserted in the Bureau files. hsidcnt the Public Servicc Company L. record of such a claim. Clark submitted of Newark, New Jersey. McElhill made employed as an Associate Reviewer in the

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Likewise, the rubber stamp used in Barber sought clients on a basis of a forty applied for that privilege several times, naling the number of stolen stamps which making the impression indicating receipt percent fee of the amount recovered. He he was permanently barred from admission he had applied to the order. His embezzle- in the Bureau of Internal Revenue an the represented to clients hat he had confiden- to practice. ments totaled $19,500. fraudulent claim was traced as having tial sources of information and associations He wad indicted, pleaded guilty and was been made by a hrm at Pmvidence, at with Bureau employees that enabled him to Embezzlements by Revenue sentenced to serve three years at the fed- Clark's request. The imprint of the sample obtain prompt and favorable action on Employees - Riotous Living eral penitentialy at Atlanta. was positively identified by the Bureau of refunds. Traps Offenders This investigation likewise resulted in Standards as identical hth that appearing The Intelligence Unit made a thorough the removal of the cashier, Burke, who was Many cases relate to the embezzlement on the alleged claim. Clark had failed to investigation and requested that a special found to be inefficient, and it also brought of Internal Revenue funds by employees. pay the bills for renting the typewriter and squad of auditors be assigned to reaudit about a drastic change in the procedure of In many instances these were brought for the rubber stamp, although they had all cases in which Guil Barber appeared, verifying inventories. The embezzlements ta light by clear indications that the been due for aver a year. If he had paid either directly or indirectly. Upon reaudit, had extended over a period of three years employees suspected were living far these two small bills the agents might it was delermined that refunds totaling and would have been discovered at the beyond their incomes. A few cases of this not have been able to establish these two $2,591,700 were improperly approved for outset if the packages of documentary type are mentioned. important links in the case. payment and that $1,963,554 of that total stamps had been removed from the shelves Clark was arrested and indicted. On the already had been refunded. when inventoried. Assistant Cashier Convicted day before the trial, his attorneys requested Steps were taken immediately to recover This is the only case brought to light permission to see the exhibits in the ease. such payments and, in due course, repay- Clifford A. Shannon, an assistant cashier where Revenue employees have stolen They conceded that no jury would acquit ments were made. Those claims that were in the office of the Collector of Internal stamps and is a remarkable record in view him in the face of such convincing erroneously approved hut not yet paid, Revenue at Pittsburgh, was found to be of the fact that the value of revenue stamps evidence. Upon their advise, Clark totaling $628,145, were rejected. frequenting night clubs and had estab- sold each year exceeds the value of pleaded guilty. Evidence of bribely or collusion of audi- lished a reputation for high living and free postage stamps sold by the Post Office tors was not definitely es~ahlished.However, spending. He was a married man, had a Department. Former Revenue Auditor Detected it was delinitely shown that the auditors of family and his salary was $2,100 a year. in Deceiving Tax Litigant. the Special Assessment Section, handling There was something wrong, it seemed Chief Field Deputv Converts Funds such refund cases, had been negligent and clear, when the Unit learned of Shannon's One of the early cases which the Edward Selbmann, former Chief Field inefficient in their appmval of refunds, and life of wild oat sawing. Intelligence Unit investigated effected a Deputy in the office of the Collector of particularly so in passing upon the cases Preliminary inquiry developed that savings to the government of more than Internal Revenue, Chicago, was investi- handled by Barber. Shannon's scheme was to hreak the seal $2,500,000. This case involved Guil gated because of suspected irregularities. Several of the auditors were removed of one end of the packages of documentary Barber, doing business as the Federal The Unit developed that he had made a and the penonnel of the entire section was stamps and remove several sheets of Tax Auditing Bureau of Washington. D.C. practice of collecting money from taxpay- completely changed through transfers of $5,810 and $20 stamps. He turned the Barber formed this concern immediately ers on distraint warrants assigned to him, the remaining employees. Administrative opened side of the stamp packages hack after resigning from his position as an and thus converted approximately $16,000 action was taken to prevent a recluTence to the wall to conceal the theft. When Auditor in the Internal Hevenue Service, to his own use. of this kind of a situation. Shannon received an order for the sale of during the early part of 1922. He evolved He confessed, and, during the trial of Shortly afterward, the Treasury documentary stamps, he would substitute a scheme of soliciting business from vari- the case, withdrew his plea of not guilty Department required the enrollment of all a sficient quantity of the stolen stamps ous taxpayers, primarily those cases with and entered a plea of guilty. Selhmann was tax practitioners who desired to represent to equal approximately the total amount of which he was familiar because of his past sentenced to eighteen months' imprison- taxpayers before the Bureau of Internal currency collected during the day. Then, employment in the Service. ment and a heof $500 was imposed. Revenue. Although Guil Barber later he would falsify the retained copy of the purchase requisition for stamps by elimi-

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Baltimore Deputy earlier representations that she would be Makes Restitution able to make a "clean-up" provided she Revenue Agent in Charge Disloyal It develuped that he had represented to had $50,000 in cash to put into the game. his secretary that he intended to many her, H. Clay Powell embezzled approximately E.A. Sudbrink, farmer Revenue Agent After an investigation, it was established but, despite that situation and his efforts 53,300 during the period of his employ- in Charge in St. Louis, was removed from that Mrs. Blacklidge borrowed the money to prevent her testimony, she reafhmed ment as Assistant Chief Field Deputy fur the Service because of disloyalty to the through misrepresentations. It was her her admissions. Sudbrink then confessed the Baltimore Collection District in charge Commissioner of Internal Revenue and actual intention to use it as a means responsibility for the mimeograph and was of the branch office at Wwhipgton, D.C. proof that he had publicly divulged confi- of making substantial winnings at the removed from the Service. He confessed and reimbursed the Govern- dential Bureau instructions. expense of someone else but, in the end, ment in full. He was indicted, pleaded A mimeograph circular signed found instead that she was victimized and Bribery end Extortion by guilty to the charge and received a sen- "Committee of Intend Revenue Agents," cleaned out by the tricksters. Revenue Employees tence of one year in jail. addressed to "Members of Congress, The Press, Chambers of Commerce. Internal There have been numerous cases involving Political Activity of Employees Investigations of Revenue Officials Revenue Agents, and taxpayers Gen- alleged extortion or bribery on thr: part Another type of investigation concerns erally," was circulated throughout of Revenue field enlployees, which have Charges of irregularities involving Collec- political activities inconsistent with orders the United Slates, severely criticking resulted in removals from the Service and tors of Internal Revenue and Internal issued by Secretary Margenthau against confidential instmctions of the Commis- convictions. Revenue Agents in Charge have been improper political activity on the part of sioner of the Internal Revenue, relative lo investigated by the Intelligence Unit. employees of the Department. the examination of retums. The circulars Attempted "Shakedown" The nature of the charges has varied IUustrative of this situation, there was had been mailed from Washington, D.C. of Harry F. Sinclair from misconduct to improper use of the The Unit was directed to make an inves- an investigation made at Philadelphia, One case which gained considerable office for personal gain or disloyalty. In tigation to determine the responsibility for Pennsylvania, involving Alvin E Fix, the attention was an attempt by two many of these cases, the evidence hab war- this offense. Samples of several hundncd Collector of Internal Revenue, and certain Internal Revenue Agents to extort $37,500 ranted removal from office. typewriten in use at the held offices of the of his administrative assistants who had from Harry F: Sinclair, oil magnate, upon Internal Revenue Bureau were compared solicited five per cent of the salaries of their representation that they would reduce Chicago Collector - with the typing on the mimeugraph circu- the employees of that office for political a pmposed assessment against him fmm Confidence Game Victim lars and it was finally established that the purposes. $264,000 to $30,000. type was similar to that of a typewriter Mrs. Myrtle Tanner Blacklidge, who was The investigation established definite The extortion plan was pron~ptly used in the office of Inlernal Revenue Collector of Internal Revenue at Chicago, that employees in many instances reported by Sinclair's lawyer. It was Agent-in-Charge Sudbdnk at St. Louis. Illinois, became deeply involved finan- made political contributions under com- arranged to have special agents available Sudbrink was ordered to Washington, cially as the victim of confidence men pulsion. The Collector, the Assistant and undercover in order that they might D.C., and while he was being questioned under circumstances which resulted in her Collector and four assistants were found personally hear the proposal uf the Rev- here, his secretary was being interrogated removal from the Service. Mrs. Blacklidge to be responsible. Fix and the Assistant enue Agents wd apprehend them. at St. Louis. Sudbrink maintained inno- borrowed $50,000 in currency from a Collector were rernoved from the Service One of the agents went to the office of cence, but his secretary admitted that she prominent attorney at Chicago, upon repre- and the four assistants were suspended Sinclair's attorney at the time of the final had typed the rnimeugraph at his direction. sentations that the money was urgently from duty for a period of one year. negotiations. In conrplianoe with a prc- She was then directed ta.proceed to needed to save her "estate." Secretary Margentheu emphasized by an-anged plan, Sinclair's attorney made the Wishington, D.C. Sudbrink intercepted her She then went to Springfield, Illinois, in his action in such cases that Treasury preliminary payment of $10,000 after the at Baltimore and endeavored to talk with accordance with prior arrangements and met Department employees shall be free from Revenue Agent had outlined that the pro- her about the matter. But, a special agent the confidence men who quickly fleeced her political influence or coercion in the per- posed assessment would be reduced by was present and directed that the matter out of the $50,000 in a crooked fam gme. formance of their official duties. approximately $235,000 in consideration not be discussed. She had been fooled completely by their of the bribe.

TOR OFFlClAl USE ONLY As the Revenue Agent left the lawyer's Agent Bergholz demanded that Clifford Taxpayers Often Unwilling is more dependent upon the integrity of to Cooperate in Solving office, he was intercepted by special Warren Smith pay him $5,000 to overlook the employee who, either directly or indi- Bribe Attempts agmts, and the $10,000 was found can- an alleged violation of the corporation he rectly, deals with taxpayers every day in cases involving large sums of money. cealed in the Revenue Agent's straw hat. was examining. Agent Sattler demanded Taxpayen or their representatives have, Susceptibility to wrongdoing in the Internal The Revenue Agents were indicted for $15,000 to submit a report accepting the in certain instances, reported that a rev- Revenue Sewice would present far-reaching attempted extonion and were dismissed return as correct and for not recommend- enue employee had solicited a hribe or and disastrous consequences if unchecked. from the Service following the disclosures. ing the additional tax liability which he was attempting to exton money, but have The Intelligence Unit, in its investiga- claimed was due. not extended their full cooperation , . tion of personnel cases, and in bringing to Revenue Agents Try to Smith reported the matter to the whereby negotiations could be held open justice those who have attempted to effect Obtain $17,500 Bribe Intelligence Unit and a dictograph was sufficiently long to allow special agents to collusion with Revenue employees, has installed prior to the next cudercnce obtain definite evidence of the crime. This case is unusual in that two Revenue sought steadfastly to protect and preserve between Smith and the agents. He was In many cases, this unwillingness to Agents, meeting each other for the &st the respect which is now felt quite univer- instructed as to the procedure he should time at the taxpayer's office at New York cooperate is due to a dislike of publicity. fallow during the next confermce in order sally towards Bureau of Internal Revenue City, where they had been separately Then, it is necessary to make an indepen- that the acts could be clearly established. employees and officials by the citizens of assigned to make examinations of corpo- dent investigation to determine whether When Smith's interview took place with thc United States. rate returns, conspired to solicit a hribe the employee has solicited bribes or Agents Rergholz and Sattler, the agents at obtained money improperly from other tax- of$17,500. Sensational Exposures Cst repeated their dcmands for bribes Some years ago George Warren Smith, a payers. This procedure presents many of Liquor Graft totaling $20.000. But. after discussion very wealthy resident of Maine, died and difficulties. A taxpayer who has paid a lasting about two hours, Agmt Sattler left his estate in two corporations, the bribe may be unwilling to give direct evi- In earlier years, "prohibition scandals," hally agreed to accept $12,500 rather in which many Revenue officers were in stackholders of which were his sons and dence concerning it unless considerable than 515,000. Smith drew a check for heirs. One of the corporations was known ingenuity is used in obtaining teatimony. league with "big" bootleggers and others in $17,500 on the Guaranty Trust Company as George Warren Smith, Incorporated, Often, it has developed in cases of this tax fraud conspiracies, provided the Unit and gave it to his employer tu get the cash. and the other, The George Warren Smith character that employees under suspicion with a large volume of investigative work. The spccid agents mad? a record of the Corporation. The former handled the finan- have left a trail of irregularities in the farm selial numbers of the bills. Smith then New York Permit Frauds cial transactions of the estate and the lat- of minor clues which have been the means paid the $17,500 in cash to Bergholi: and of definitely establishing their wrongdoing. ter was a real estate company. One of the Gst investigations uf this type Sattler, and as they left the office, they The fles of the Intelligence Unit show a Internal Revenue Agent Joseph M. was at New York City. Immediately after were taken into custody. When infomd large number of investigations of charges Sattler had been assigned to handle the the National Prohibition Act became effec- that their entire conversation had been against personnel involving attempted return of one of the corporations and tive on January 17,1920, an avalanche of overheard, they admitted their guilt and extonion, bribery, collusion and other Revenue Agent Victor Bergl~alshad the applications for permits to withdraw and pleaded guilty to the indictment fourld irregularities. The benefit to the Bureau 1i1un1 of the other corporation. 1t so hap- sell alcahalic liquors was Ned with the against thmm in the next few days. The of Internal Revenue is not solely in the pened that bath agents ca!kd at the office Federal Pmhibition Directur at New York Court sentenced each of them to serve six apprehension of guilty employees; hut, to of these two corpurations at 35 Nassau and other cities. months in prison, and they were placed on a far greater extent, the wholesome effect Street, New Yurk City, at the same time. Men in nearly all walks of life besieged probation for a period of two years. of such detection as a deterrent to other The agents represented that there was a the corridors and lobbies uf he Director's employees in the Service. substantial tax liability due frum both tax offices. They had the same spirit of eager It is of the utmost importance that the corporations and requested that Clifford W, enthusiasm that characterized the gold of the Bureau of Internal Smith, son of ihe deceased George Warren seekers in the mad rush to the Klondike Revenue be of the highest type uf charac- Smith, be called from Maine to New York in 1897. The congestion at the New York City to discuss the matter. ter. No other branch of government service

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLV offices of thp Fedma1 Prohibition Director Philadelphia Liquor Frauds was great. emment. In order to guard against fraudu- Two girls employed by the Prohihition Another important conspiracy case growing Those who were fortunate eunugh to lent permits, the distillery, upon receipt of Director were with Donegan at the time nut of the issuance of fraudulent liquor obtain permits to conduct wholesale liquor permits for the withdrawal of liquor, was and all three were arrested. The following permits involved William C. McConnell, stores pleaded and demanded approval required to telegraph to the Prohibition day, cash bail was set for the three at the State Prohibition Director of Pennsylvania of permits for larger liquor withdrawals. Director giving the permit number. The total amount of $250,WO, which Dunegan in 1921. During prohibition, wholesale liquor deal- distillery would not ship the whiskey immediately furnished. A search wwanl Special agents of this Unit developed ers were the principal outlets through called for by the permit until word was was then obtained for a safe-deposit box evidence indicating that applications for which liquor could legally be obtained and received from the Prohibition Director which Danegan had, and it contained withdrawals of liquor had been issued ille- sold to those permitted tu buy for nanbev- that it was genuine. $500,000 in cash. gally by the Director. Investigation estab- erage uses. Donegan's scheme was to sell forged arid Donegan was vied on the charge of hav- lished that. during the first three months of When the withdrawal permits with bona fraudulent sets of permits to various baol- ing in his possession stolen property with his term in office, 215 fraudulent permits 6de approval became more difficult to leggers at prices ranging fmm $10 lo the intent to defraud the United States. had becn issued, covering 315,567 gallons obtain, the unscrupulaus resorted to the $20 a case. Through collusion with a girl His attorney was the celebrated William J. of whiskey and 23,650 gallons of illcohol use of counterfeit forms and forgeries of employed in the office of the Prohibition Fallon. He was convicted and sentenced to released and divertcd for illicit purposes. the Prohibitior Director's name, covering Director, whose duty it was to verify per- serve a term of ten years. His appeal was This investigation resulted in the the withdrawal of whiskey from distilleries mits, telegrams received at the Prohibition drafted by the late Attorney Zoline, recog- removal and prosecution of McConnell in thousand cases and carload Ilus. Office from distilleries holding Donegan's nized authority on federal procedures. as Prohibition Director, together with four Liquor permit applicants in their eager- fraudulent permits would be answered with Argument on appeal was made by John W. members of his staff. If McConnell's activ- ness to procure permits, offered bribes tu the false information that the permits were Davis, farmer presidential candidate, but ities had not been stopped, he would have the employees and officials of the Prohibition genuine. the conviction was sustained and Donegan released all of the whiskey in distilleries Unit to have applications approved or to Donegan operated this ~lanfrom was sent to prison to serve his sentence. in Pennsylvania to the bootlegging trade prevent disclosure of illegal withdrawals September until December 1920, during within a yew at the rate he then was on counterfeit pennits. which time his bank deposits totaled Major Prohibition Conspiracies authorizing withdrawals. The tremendous profits in the liquor 51,653,797. Danegan's illegal activities Involving Prohibition Employees were discovered by special agents who business led to corruption in official Numerous cases involving collusion Day Laborer Becomes called an apartment maintained by him in places. The resort to bribery was so exten- between Bureau employees uud those Millionaire - Permits Obtained the McAlpin Hotel in December 1920, in sive that it presented a serious problem. engaged in illicit liquor Lraffic have been Through Girl Employees connection with another investigation. At .&I investigation by special agents of investigated by this Unit. that time he attempted La bribe the this New York situation done resulted Another investigation by this Unit during Cases along such lines were the general special agents with $6,500. in 94 arrests and prosecutions. These the early days of prohibition which investigation at Milwaukee, during the He was immediately placed under arrest included 8 clerks in the offices of the was given nationwide publicity was the early days of prohibition; the for attempted bribery. A search of his room Federal Prohibition Director; 9 special Donegan conspiracy case. Edward case; the Jack Daniel Distillery Company and penun revealed about one hundred prohibition agents and inspectors and Donegan, formerly an add-job laborer and investigation and the New Hallam conspir- telegrams addressed to the Prohibition 29 liquor dealers who brihed prohibition later a bootlegger operating an a small acy case. agents in efforts to obtain permits. scale, evolved a scheme which made him Director at New York requesting that the genuineness of certain numhered permits A total of $11,580 tendered as bribes a millionaire within about four months. Milwaukee Liquor Scandal was received by the special agents in order About September 1920, wholesale liquor to purchase liquor he verified. When these that the violators might not be appre- dealers were permitted to withdraw liquor telegrams were discovered and his scheme The Milwauke investigation was made because of evidence that liquor was being hended, and the money was retained by from distilleries in the various districts disclosed, he then tried to bribe one of the illegally diverted through collusion with the guvernment. by permits which were issued by the gnv- special agents with $25,000. pmhibition officials. An intensive investi-

FOR DFFlCIA1 USE ONLY FOI OFFICIAL USE ONLV gation developed evidence which resulted 549,000 were imposed. The Bureau recav- others ranged from a-convicts to men It developed that the "export" company in the indictment and conviction of the ered an the bonds of the Superior Industrial prominent in the business and political life had amanged for the totd shipment of following officials: Alcohol Company in the sum of $112,500, of St. Louis and Cincinnati. 13,000 barrels of whiskey in the manner 1 Assistant Chief, Legal Bureau, which was paid into the Treasury. After trial, 24 of the defendants were described, and if this ~lanhad been suc- Prohibition Unit, Washington, D.C. found guilty and were sentenced to various cessful, "the $5,000,000 Conspiracy" 1 Federal Prohibition Director St. Louis Bonded terms ranging Lom four months in jail would have been consummated. 1 Chief Rohibitian Inspector Warehouse Robbery to two years in the federal penitentiary, This proposed plan for wholesale diver- I Prohibition Agent-in-Charge together with fines of 5500 to $5,000. sion came to light in connection with The Jack Daniels Distillery Company, St. 1 Prohibition ~ns~dctor Collector Hellmich was given a sentence another investigation in which a special Louis, Missouri, case related to the roh- 1 Deputy Collector of Internal Revenue of two years in the federal penitentiary agent was making inquiries. Immediate bery uf the bonded warehouse of this dis- 1 Bank President at Leavenworth and fined $5,000. Deputy inquiry into the matter was made and it tillery during Augum 1923. At that time, it 1 Rominent Auorney Collector Kinney was sentenced to eigh- was learned that this group had already was discovered that all but one of the 891 15 Wholesale Liquor Dealers teen months in the federal penitentiary arranged to ship 100 barrels. It was found barrels of whiskey in the warehouse had and was fined 51,000. that the 100 barrels desipited for "export" A total of thirty-one years and fines been emptied and refilled with water. The shipment to Greece contained wales the totaling $167,000 were imposed in these actual shortage was computed to be A $5,000,000 Conspiracy whiskey having been diverted in accor- cases. It was established that, as a result 40,470 pmof gallons. dance with the scheme of the conspirators. of the conspiracy, approximately 100,000 The investigation developed that a group One of the outstanding conspiracies to vio- The work of the special agents was then gallons of whiskey had been illegally sold headed by , a notorious boot- late the National Prohibition Act investi- to establish criminal responsibility and and that a total of 5110,000 in bribes hd legger from Cincinnati, , purchased gated by this unit was the case referred to obtain evidence which would bring ahout been paid. the capital stock of this distilling company in the Philadelphia newspapers as "the a successful pmsecution of the principals on June 26, 1923. It was established that 55,000,000 Conspiracy." involved. In this investigation, it was con- Revenue Officers in Collector of Intemal Revenue Hellmich A company had been organized to han- tended by the Customs officials that the Bootleg Conspiracy of St. Louis made an inspection of the dle "export" shipments of liquor to diversion had taken place prior ta the distillery premises in July 1923, in the Greece, ostensibly by lawful means. Their In the so-called Cleveland conspiracy withdrawal of the whiskey from the bonded company of "Jack" Kratz, a prominent St. scheme was to obtain legal authorization case, special agents ohtained evidence that warehouse and during the period that it Louis politician and former liquor dealer. for such "export" shipments, and substi- the Superior Industrial Alcohol Company was under the supervision for the Internal Shortly after this inspection, a veteran tute water in the place of the whiskey was buying tremendous quantities of tax- Revenue Storekeeper Gauger. On the other storekeeper gauger, who was on duty at through collusion with Customs employees, free grain alcohol ostensibly for the pur- hand, the Revenue Gauger insisted the the distillery, was transferred to another just prior to actual shipment. The whiskey pose of denaturing far industrial uses, yet was diverted to the bootleg trade in this diversion had taken place alter the bonded warehouse and replaced by an virtually none of it was denatured. It was country and the barrels of water were to he whiskey had left his custody. appointee of the Collector, one Deputy sold to bootleggers over a large seetion of The testimony was conflicting. Collector Kinney, who held the assignment shipped abroad. the country for beverage purposes. Just prior to the organization of the Responsibility was finally fixed through a during the entire month of August. It was As a consequence, 112 individuals company to handle the "export" business, chemical analysis d the water contained during this period that the whiskey was were indicted, including two officers of the Matthew F. Griffi, former Secret Service in the barrels, and its comparison with pumped fmm the warehouse thmugh a Revenue Service. Most rd those who were Operative-in-Charge of the Philadelphia samples of the water in the vicinity of the hose to trucks loaded with barrels. indicted pleaded guilty, including the prin- Office, together with an employee of distillery and the water in the locality This investigation resulted in the indict- cipal offenders. Temls of imprisonment the United States Attorney's Office at where the barrels were found. These chew ment of 39 individuals. These included totaling approximately eighteen years and Philadelphia, had resigned their positions. ical tests fully exonerated the Storekeeper Collector of Internal Revenue Hellmich fines in the total amount of appmximately They organized detective agencies for the Gauger. Confronted with this evidence, a and Deputy Collector Kinney, and the ostensible purpose of guarding the pur- Customs guard confessed that he was a ported legal "export" of such whiskey. participant in the conspiracy and that the

FOR OFfICIAL USE ONLY FOR OFFICIAL USE ONLY were brought to trial, the jury, responsive resulted in the removal of two officials water was substituted for the whiskey had Beach on their payroll far several to the aroused attitude of the public, con- of the Commerce Depurtment who held while it was under his supervision. The years. A raid on the apartment of the victed the entire group of conspirators. important positions. identity uf the other principals in this con- dealers disclosed large quantities of The Cou1-1imposed prison sentences A few yean ago, a congressiut~alcum- +racy was established and prosecution opium, morphine, heroin and cocaine. ranging from four months to three years for "litter investigating the Police Depurtment followed. The trial was spectacular and During the investigation, evidence of the various defendants, together with fines of the District of Columbia desired evi- attended by considerable news publicity. narcotic violation at numerous other places ranging from $200 to $50,000 and totaling dence as to whether professional gambling Public attention was focused upon the case was obtained. Simultanmus raids, con- 8220.000. was carried an in the District of Columbia. because of the eitensixe and unique char- ducted by special agents, established the Special Agents of this unit were successful acter of the plot, and the fact that Griffin, origin of quantities of illicit narcotics. A in obtaining the evidence establishing that for thirty years Secret Service Operative- number of crin~inalprosecutions resulted gambling was carried on st many places in in-Charge at Philadelphia, Pennsylvania, from the evidence developed during the Special Investigations the District. was one of the principals. investigation of this case. At the direction of the President, the During the trial of this ease, senior In addition to the various types of cases Intelligence Unit was called upon during Judge Thompson of the United States "Big Four" Liquor Ring Bought elsewhere described, the Intelligence Unit the early part of the ltalo-Ethiopian War to District Court at Philadelphia, the Clerk of "Protection" From Officials has been called frequently by the make an inquiry to determine whether the Courts for that District, and several other Commissioner and the Secretary of the Embargo Act prohibiting the shipment of pruminenl persons appeared as cllaracter The investigation of the "Big Four" smug- Treasury to make investigations not related gling ring at Savannah, Georgia, disclosed munitions to warring nations was being' witnesses for Griflin. A verdict of guilty to the regular routine duties. complied with. Prompt and effective was rrturnd and penitentiary sentences one of the mast active bootlegging syndi- During 1934, the Secretary directed that cates in the history of prohibition. The inquiry was facilitated because of contacts were imposed. a very thorough and immediate investiga- "Big Four" group had an organization tion be made by the Intelligence Unit to with munitions companies established by which controlled liquor smuggling at the the Unit during prior tax investigations. Chicago Narcotics Scandal determine the supply of silver bullion on port of Savannah, Georgia, and directed Special Agents of the Intelligence Unit Involving Federal Narcotic Agents hand in this country and by whom it was frequently have been directed by the the smuggling operations of their boats held. Time was a vital element. The unit Among numerous other outstanding cases through a privately owned wireless. obtained the cwperation of brokers and Secretary to make investigations of other investigated was a Chicago narcotic ring Special Agents of the Intelligence Unit others dealing in silver in the commodity agencies of the Treasury Department. In which was "protected by federal narcotic were called upon to assist in breaking up market of New York City. Within twenty- all such instances, the Unit's cumulative officers. experiencd, as a result of investigating the this ring. It was necessary for them to four hours a report was suhmitted to the Early in 1925, information was obtained spend months making acquaintances with Secretary. great mass of cases of the type related in indicating widespread cormption among the principals before finally transacting On another occasion, the Unit was asked this report, has proved invaluable in estab- the personnel attached to the Federal business directly with them. to cooperate with the Bureau of Efficiency lishing a definite course of procedure Narcotics Office st Chicago. It had been was whereby prompt results can he obtained The "Big Four" generous in its to assist in a criminal investigation insti- reported that all the narcotic agents sta- in the cases constantly arising. "protection" payments to public officials gated by a congressional committee tioned at Chicago, including Will Gray at Savannah and it was necessary to accu- regarding the cha~gesthat illegal contracts Beach, the Narcotic Agent-in-Charge, Cooperation With Other Treasury mulate evidence in such a fashion that it had been made by ufficers of the District could be "fired." would be practically ironclad as pmf in of Columbia. Agencies in the Suppression of An investigation was made and evi- criminal prosecution. In another instance, special agents Liquor Smugglers dence obtained that Beach and agents Evidence was obtained involving 85 cooperated with officials of the Department In January 1935, an investigation of under his supervision exchanged mor- defendants who were indicted. Public of Commerce in investigating charges of Canadian distillers and their subsidiq phine and cocaine for stolen jewelry. It disclosure of these flagrant law violations irregularities on the part of Commerce and organizations was launched under the was further established that two uf the awakened the public conscience of the Treasury Department employees. This case direction of Hamld Graves. Assistant to largest dealers in narcotics at Chicago people of Savannah. When the defendants

FOR OFllClAl USE ONLV FOR OFFICIAL USE ONLV the Secretary, with participating personnel was complicated by the fact that much of He suugh1 to have the then Secretary of Hauptmann received more publicity from the Bureau of Customs, Bureau the necessary evidence had to be obtained the Treasury and Commissioner of Internal thmugh newspapers, magazines and radio of Narcotics, Alcohol Taa Unit, and in foreign countl7es. Revenue removed from dice on false than any other single event in the history Intelligence Unit. Finally, a liability of several millions of chqes with the purpose of succeeding of this country, with the exception of the It should be emphasized that the Intelli- dollars for customs duties and penalties the Seeretvy in uffice. World War. This case was su highly puhli- gence Unit furnished only one member of waded, and for excise and income taxes, Evidence was obtained definitely ~i~edand its details are so familiar to the a committee to handle this case and it was was established against the distillers. proving that the Assistant Secretary was xading public that the story will not he not primarily an accomplishment of this The matter of enforcement of collection responsible for an extensive campaign elaborated here. orgmiration; howeveg the facts in this was a further obstacle, as the taxpayen of misrepresentation, and it was further Briefly, the apprehensiun of Hauptmaml case are so interesting that they are were foreigners, and this presented a established that he was working in collu- and his subsequent conviction as the kid- described briefly beluw. problem of obtaining jurisdiction. sion with certain officials of the Bureau of napper is due to the fact that certain of the The Canadian distilleries under investi- The cases were made the subject of Internal Revenue. ransom bills were traced to him through gation had been the source of a large quan- compromise negotiations. As a result, a The investigations resulted in the sepa- their serial numbers. After this disclosure, lity of liquor smuggled into the United total of $3,000,000 was collected by the ration from the Service of the Assistant collateral evidence was established indi- States during the Prohibition era. The dis- Treasury, which was paid as follows: Secretary and two officials of the Internal cating his guilt. tillers professed to be selling the liquor Distillers Corporation Revenue who were found to he involved. The serial numbers of the ransom bills legally in Canada to American smugglers, Seagrams, Ltd. et. al., $1,500,000 were recorded only upon the insistence of who came there for it. Hiram Walker-Gcwderham and The Lindbergh Kidnapping the special agents, who were also responsi- The distillers, however, were found to Worts, Ltd. el. a]., 1,000,000 ble for the use of $35,000 in Gold One of the mast important investigations have been manufacturing liquors of a type Canadian Industrial Alcohol, Ceaificates in the ransom payment. After in which the Intelligence Unit has partici- designed only for the American trade. Ltd. el. al., 250,000 the ransom was paid, the Intelligence Unit pated, having no direct relation to the Investigation showed they had established United Distillers, Ltd., 250,000 was instrumental in causing an immediate Unit's primary functions of dealing with depots at smuggling bases on the French report of the receipt of any of the ransom United Distillers, Ltd., had voluntarily tax evasion cases and personnel irregulari- islands of St. Pierre et Miquelon, in the bills by banks or husiness agencies. tendered a smaller amount as an offer in ties, is the Lindhergh kidnapping case. Bahamas, in British Honduras, in Ensenada, On September 12, 1934, a filling station compromise, after the Bureau of Customs On March 8, 1932, Colonel Charles A. Mexico, in Wpeete, Tahiti, in Vancouver, attendant noted the license numhcr of had instituted a similar investigation with Lindbergh telephoned the Secretary of the British Columhia, and in other countries. Bruno Richard Hauptmmn's automobile regard to another Canadian Distillery on Treasury advising him of his desire to have The distillers thereby almost completely on a 510 Gold Certificate used by the Pacific Coast. the assistance of the Intelligence Unit to encircled the United Stated with liquor Hauptmann to purchase gasoline. The hill This oller was increased to the amount bring about the return of his son who had smuggling depots. They employed agents was then deposited in the Cum Exchange indicated and was accepted by the Treasury. been kidnapped. and solicitors in various parts of the National Bank at New York. A bank clerk This collection was fmm a source which The Chief and special agents of the United States and aided and assisted checked the serial number of the Gold had been considered to he beyond reach. Intelligence Unit participated in frequent Americn smugglers in the illicit impurta- Certificate with the list of ransom currency conferences with Colonel Lindbergh and tion of liquor into this country. The investi- furnished to the hank hy the Treasury Intrigue in High Places Colonel Breckinridge, his counsel. During gation required the as8embling and Department. It pmved to he one of the these conferences plans were made for the correlating of a vast amount of information In 1922, the Intelligence Unit was ransom bills and Hauptmann then payment of the ransom, the recording of obtained by various Treasury enforcement requested to make a special investigation was arrested. the serial numbers of the tansom currency, agencies. relative to Elmer Dover, the As~istant The 1ntellige;lce Unit also made an and the investigation of various persons An extensive inquiry extended into Secretary of the Treasury. Information had investigation of the financial transactions under suspicion. many parts of the United States and into been obtained that he was endeavoring, of Hauptmann. Special agents were able The kidnapping of the Lindbergh haby Canada, and in some of the French and thmugh indirect means, to undermine the definitely to show that the increase in net and the subsequent trial of Bruno Richard British Colonial possessions. The inquiry Secretary of the Treasury. 80 FOR OFFICIAL Ulil ONLY FOR OFFICIAL USE ONLl woah and disbursements of Mr. and Mrs. for me to thank you sufficiently 2. Those taxpayers who might seek to Elimination of Bruno Richard Hauptmann from April 2, for your own assistance and that of your escape tax liability through bribery Dishonest Employees 1932, the date of the payment of the ran- department. I know of nothing which could of employees. som, up to the date of Hauptmands arrest have been done which was not and I fully The Intelligence Unit's records of investi- on September 19, 1934, including ransom realize the time and effort that you have When such individuals read of the crim- gations of charges against personnel show money on hand when arrested, totaled spent. It has meant a great deal to us to he inal prosecution of prominent persons for that there has been a steady decrease in $49,950 - slightly less than the total able to go to you for advice and I want to evading taxes, it causes the natural reac- recent years. The highest number was 535 amount of the ransom paid. thank you again for the many ways you tion of prompting serious thought to their during the fiscal year ending June 30, This evidence introdked by a special have helped. Time and again during the own income tax returns. 1924, and the lowest, a total of 33, during agent at the trial of the case was very con- past months I have realized the value of Tax evaders and tax dodgers who have 1932. vincing. From the date of the arrest of Federal organization. ei~herfailed to file returns ur understated One of the reasons for this tendency is Hauptmann, and throughout the trial, the Sincerely, their income, have filed delinquent or that the Unit stalled out on July 1, 1919, Intelligence Unit cwperated with the Charles A. Lindhergh." amended returns in large numbers imme- with the process of "cleaning house" of Attorney General of New Jersey and his diately following news stories of income dishonest employe~s. assistants in interviewing the principal tax prosecutiuns. This has resulted, each Thousands of additional employees were pmsecution witnesses. Indirect Results of year, in an increase in the revenues of the brought into the Service to handle the After the defendant was convicted, Government by many millions. increased work resulting from the erner- Attorney General Wilente wrote Secretary Investigations - The criminal prosecution of an employee gency war-time tax rates and in connection Morgenthau a letter dated February 14, Fear of Penalties and or disciplinary action far irregularities, with the Prohibition Service. During 1927, 1935, expressing his appreciation and Punishment Deter serves as an effective deterrent to those the Narcotic and Prohibition personnel of commending the services performed by the employees and taxpayers who may he the Internal Revenue Service was trans- special agents who had been assigned to Large Classes from tempted to evade taxes through bribery. ferred to separate newly created Bureaus. the case. Revenue Law Violations The seriousne~~of he consequences In that earll period, after dishonest The Chief of the Unit was called to of criminal prosecution has a wholesorne employees were removed from the Service, Flemington, New Jersey, during the trial Numerous eases of various types have effect upon employees. It is extremely the policy was gradually established of of the Hauptmann case to confer with been commented upon and the results important that the persorn~elof the Bureau investigating applicants. This has resulted Attorney General Wilentz, who conducted likewise have been stated. Of greater of Internal Revenue be of the highest in the weeding out of undesirables prior la the prosecution. On that occasion, Colonel importance, however, are the indirect integrity because of the large dollar employment, and haas lessened the neces- Lindbergh expressed to Mr Irey his sin- results that have been brought about amounts involved in the cases upon which sity for so many removals later. cere appreciation for the activities and because of the prosecution of violators they pass. To a very large extent, in recent years accomplishments of the Intelligence Unit of the Internal Revenue laws. Although several eases involving collu- the work of the Intelligence Unit in regard in connection with the investigation and The criminal prosecution of a tax evader sion on the part of Bureau employees are to personnel has been preventive. This is said: and the prosecution or disciplinary action cited in this summaw it can be empha- attested by the fact that investigations "If it had not been far your Service against an employee affects two celtain sized that the personnel of the Internal involving charges against personnel have being in the case, Hauptmann would not classes of people: Revenue Service is, nevertheless, of a very varied from 33 to 56 for the fiscal years now he on trial and your organization 1. The large number of taxpayers who high caliber. There are numerous instances 1931 to 1934. deserves the full credit for his apprehen- have submitted false income tax of investigations that have Shown the alle- The total ~ersannelof the Internal sion." Colonel Lindbergh wmte Mr. lrey a returns, either with intent to defraud, gations to be false and the employees have Revenue Service approximated 12,000 employees during 1931 to 1934, inclusive. letter as follows: or because of carelessness. been exonerated. "Dear Mr. Irey: Since then it has increased to a present I want you to know how much we appre- totill of approximately 22,000. ciate all that you have done for us. It is not 82 FOR OFFICIAL USE ONLY Because of the recent increase in per- prosecution, such procedure was followed such work has been performed. On the "steal" by the William Hale Thompson sonnel, the number of investigations of without respect to the prominence of the other hand, on account of the limited num- political organization and that the pay- charges against employees has been greater individual. ber of agents available, it has not been ments were illegal and fraudulent. than in the years immediately preceding. Thousands of complaints, anonymous considered advisable for the Intelligence The suit was won by the taxpayer Investigations of this type totaled 175 in letters and confidential information of all Unit to undertake the investigation of tax and judgments obtained against the five the fiscal year ended June 30,1936. sorts alleging tax evasions are referred evasion cases involving small amounts and experts for the amount of the payments. to the Intelligence Unit for investigation. most of these minor cases are closed by The experts then, as part settlement of the Probe of Tax Evasion. Many successful tax fraud cases have Deputy Collectors without prosecution. judgments, assigned to the City of Chicago resulted from these sources. On the other Occasionally, there are assigned to the their claims for return of the income taxes As has been stated, the investigation of hand, it frequently develops that the com- Intelligence Unit tax matten in which there paid to the government. However, the City tax wasions which is the principal activity plaint is without merit or is inspired by is no fraud or basis for criminal prosecu- of Chicago failed to take advantage of the of the Intelligence Unit, has steadily malice and not based on facts. Experience tion, hut for various reasons other branches opportunity to secure refunds from the increased during the past few years. The has established the wisdom of proceeding of the Internal Revenue Service have been government. number of taxpayers is rapidly pwing cautiously and impartially in the investiga- unable to establish the facts in order to William Hale Thompson was still and the high tax rates are an incentive tion of such complaints. sustain additional tax assessments. Mayor of the city and was fast becoming to dishonest taxpayers, accountants and There are instances which resulted a national figure in this country, when the auarneys to attempt to evade taxes. in the determination that there was no William Hale Thompson Case refund claims were assigned to the City of While the necessity for an organized additional tax liability. In many instances, Chicago. It is believed that his failure to force of experienced men to investigate An illustration is the investigation made of refunds have been recommended. The prosecute the claims was pmmpted by his such tax evasions is readily apparent, it is five individuals, members of the William principal thought in mind always is to get reluctance to have the facts bearing on nut desired to convey the idea that the citi- Hale Thompson organization at Chicago, the facts. The work of the Intelligence Unit the illegal payment of 52,876,063 again zens of this country practice evasion of Illinois, who had received exorbitant fees would be ineffective if it was subject to brought to light through the unfavorable taxes on any large scale. from that city as real estate experts in con- influence or deviated from its practice of publicity which would have been given to The number of tax evaders in compari- nection with appraisals. They had reported handling all cases impartially. An open him throughout the country. son tu the number of returns filed is, of the income of $2,876,063 but claimed that mind is essential in all investigations until cmrse, small, but, to keep the number of it was exempt on the theory that they were the facts are established. Action is then Criminal Prosecutions tax evaders to a minimum, it is necessary city employees. The General Counsel in taken according to such facts. Spur Delinquents to have full and continuous publicity office at the time had sustained the con- regarding thase individuals whose tax eva- tention of the taxpayers. The prosecution for income tax violations Cases Without Criminal Basis sions are discovered. Such publicity has a The Commissioner was not satisfied and of Capone and other prominent racketeers very salutary effect on that small class of Less spectacular than the investigation of directed an investigation to determine the nut only inspired other enforcement agen- citizens who have to be frightened into cases which result in criminal prosecution, facts relative to their employment. It was cies, State and Federal, to undertake dri- paying their share uf the tax, as required are those cases that do not reach the established that the individuals in ques- ves against public enemies and organized by law, toward the expenses of their courts hut are of considerable importance. tion were not city employees and their racketeers, hut of even greater importance country; This involves work by the Intelligence attempts at tax dodging were unsuccessful. to the Treasury Department, it stirred the The evasion of income laxes is referred Unit in the investigation of those tax fraud The tax assessed as a result of this investi- tax conscience of a very large body of to as the rich man's crime. It hdluws that cases which, either because of the running gation exceeded $900,000, delinquent taxpayers and tax dodgers. frequently considerable pressure is brought of the statute of limitations or insufficiency A taxpayer's suit against the five real In a radio address made on February 29, to bear politically or through other means of evidence, do not result in a criminal estate experts and Mayor William Hale 1932, over a caast-to-coast network by a to intimidate the investigating agents. The prusecution but are handled directly by Thompson was instigated by the Chicago former Cummissioner of Internal Revenue, consistent policy has been that, in all the Commissioner or before the Board of Tribune to recover the $2,876,063 for the he referred to the indirect result of criminal cases where the fact3 warranted criminal Tax Appeals. A considerable volume of city, alleging that the payments were a prosecution through the collection of taxes

FOR OFFICIAL USE ONLY FOR OFFICIAL USE OYLV Aid to State Authorities Promot- 1.uciano aud his immense income from from persons scared into the filing of delin- Cooperation Produces Benefits the Public's Interests illegal sources. quent and amended returns. He stated: in Federal end State Law The State Police of New Jersey had thc At the request of Mayor LaGuardia of New "In one collection district where this Enforcement full .cooperation of the lnalligence Unit York City, Secretary Morgenthau directed phase of the situation was looked into, it during the Lindbergh-Hauptmann investiga- Many years of experience have demon- the Intelligence Unit to train a corps of was apparent that this activity had pricked tion and special agents of the Unit directed strated that material benefits are consis- New York City detectives to discover eva- the conscience of many taxpayers who had the activities of certln New Jemey detec- tently derived through the cooperation uf sions of the New York City sales tax. failed to file returns or to make honest tives during a period of &out two years. the Intelligence Unit with the enforcement During 1934, an agent of this Unit, returns. , , The purpose of the Intelligence Unit has agencies of the Treasury Department, as under the direction of Harold Graves, "Since the first publicity relating to been to pmmote and maintain a cwperalive well as administrative heads of slate. Assistant to the Secretary, supervised a these cases, the Government income from relation with all Federal, State and munici- county and municipal governments and the drive at New York City in conjunction with taxes has been increased in this district pal agencies so far as law will permit, with police agencies throughout the country. the police to inspect all retail liquor busi- by hundreds of thousands of dollars which the object of making available promptly all The Post Office Inspection Service has nesses for Federal and State violations. It came from delinquent and amended information or evidence which might he of cuoperared fully with the Intelligence Unit was arranged that each Federal employee returns from taxpayers, many of whom help in bringing the criminal to justice on in many ways, particularly in providing assigned to this drive would work in coop- were engaged in gambling and various any charge in State or Federal courts. information concerning mail usage of indi- eration with a city police officer in making other business of an illegal nature. viduals under investigation. Likewise, the "h mentioning the Capone case I do a joint inspection. State Department has cooperated con- not want my radio listeners to feel that the This investigation resulted in the disclo- stantly with the Unit. In the Lindhergh Results During Present Bureau has any thought than that ninety- sure of numelous violations and in a con- investigation, the State Department nine and ninrty-nine one hundredths siderable increase in the revenue of both Administration extended extremely helpful service with the Federal and State Governments. percent of the taxpayers are scrupulously regard to matters concerning which they hunest." In the Dewey investigation af vice con- At the time Secretary Margenthau was had records, or were in a position to obtain He referred also to some unfavorable ditions at New York City instigated by appointed to office, there were pending cooperation from other Guvernments. comment in the press relative to the Governor Herbert tehman which is now several cases against well known racke- It has been the consistent policy of the Government sharing in the way of taxcs active in the pmsecution of racketeers in teers. While reference has been made to Intelligence Unit to cooperate with all collected, in the profits derived from ille- the State courts, considerable help has some of these as typical cases, they will other law enforcement agencies. This spirit gal business and in that regard stated: been and still is being furnished by the bear reiteration to show the sequence of has developed one of the greatest assets to "If we failed to collect taxes in cases of Intelligence Unit. significant enforcement events that fol- the Intelligence Unit. that kind, we would be establishing a class In the recent prosecution and conviction lowed in rapid order after the present The godwill which has been established of tax-exempt citizene. In theory of course, of Charles "Lucky" Luciano, who was sen- Administration began. over a long period of time has made it pos- a business should not be conducted in rio- tenced on June 18, 1936, to thirty to fifty sible to obtain valuable assistance and lation of State or Federal laws. If so con- years in jail, the Intelligence Unit made Recent Criminal Prosecutions active cooperation of all police and inves- ducted, however, and if a profit is realized available certain evidence which had been tigative agencies thmughout the country. These more important cases included from its operation, the Revenue laws tax obtained during prior investigations at In several cases involving tax fraud those of "Waxey" Gordon and "Dutch" this profit notwithstanding its wurce." New York City. investigations of public enemies, the facili- Schultz, both of New York City; Murry The successful prosecution of prominent Part of the evidence turned over to ties of state and municipal police depart- Prosecutor Dewey was used by him in his Humphries and Tommy Maloy of Chicago; individuals on the charge of tax evasion ments have been made available and were Leon Cleckman of St. Paul, Minnesota; has served as a means of placing all tax- examination of the defendant Luciano and of considerable help. end John Lazia of Kansas City, Missouri, payers on notice that the Internal Revenue was of great value in demonstrating to the all of whom had been indicted. laws are administered impartially. jury the previous criminal activities of

FOB OFFICIAL USE ONLY FOB OFFICIAL USE 011'1 Secretary Morgenthau directed that all 1934, receiving a sentence of eighteen Other Important Tax Fraud Cases Internal Revenue Service as to their char- efforts of the Intelligence Unit be concen- munths and a fine of $5,OW. During this Administration acter and fitness for the position sought. trated to bring about the conviction of Tommy Malay, business agent for the The Secretary broadened this policy to these gangsters who had become leaders In addition to the criminal prosecution of Motion Picture Operators Union, Chicago, include the investigation by the Intelli- notorious racketeers, the Intelligence Unit of organized racketeering in the localities Illinois, had been investigated by the gence Unit of applicants for positions of recently investigated numemua tax fraud where they operated. Intelligence Unit and evidence developed importance in other branches or the cases involving prominent persons and "Waxey" Gordon was convicted by a establishing that he had received a large Treasury Department. business concerns. jury on charges uf evading income taxes income fmm his racketeering activities in These investigations have resulted in the Some of the cases coming within this for the years 1930 and.1931, and conspir- the motion picture industry which had nut rejection of a great number of applicants. categoly and which have been discussed acy to evade taxes amounting to $547,424 been reported on his income tax returns. This has succeeded in maintaining the in detail heretofore are: for those years. Because of the magnitude He was indicted for evasion of taxes character of the Service at a high standard. William Fox, motion picture magnate, of his illegal activities, the trial was amounting to $80,603 but was murdered The records show that: lengthy and it was necessary to furnish New York City. on February 4, 1935, the day prior to his 1,656 applicants for appointment as The Rubel Coal and Ice Corp., detailed evidence of his financial manipu- arraignment. Deputy Collectors were investigated and Brooklyn, New York. lations. The jury considered the case but Leon Gleckman, St. Paul, Minnesota, 138 rejected, a ratio of 8.33% The Dupont and Fiaskob cases. furty minutes, returning a verdict of guilty, was known as the "A1 Capone" of the twin 178 of the 1,147 applicants for positions and the court immediately sentenced on Ringling Brothera-Barnum Bailey cities. He was convicted November 28, as Revenue Agents were rejected, a rah Combined Shows, Inc. Gordon to tm years of imprisonment and a 1934, on charges of evading income taxes of 15.52% Sarasuta, Florida. fine to pay of $80,000. and sentenced to eighteen months at .359 investigation of individuals who Thr Arcadia Knitting Mills, Inc., "Dutch" Schulta had been indicted but Leavenworth and a heof $5,000. The tax sought positions in the Pmcurement was a fugitive from justice. During the New York City. liability for the years 1929 to 1931, inclu- Division resulted in 77 rejections, a The E.M. Smith Corporation, course of an exhaustive search by the sive, was established at $104,165. 21.4570 ratio. special agents, he surrendered at Albany, John Lazia, notorious racketeer of Los Angeles, California. New York, on November 28, 1934, and Kansas City, Missouri, was indicted for Moses L. Parshelsky el al., These percentages of rejections con& was released after bail in the amount of evasion of income taxes, convicted upon Brooklyn, New York. the wisdom of this new prucedure. 8100,000 had been furnished. Schultz was vial and sentenced to two yean in jail and Arthur W. Cutten, grain trader, A large proportion of the field service of tried in the Northern District of New York a heof $5,000 was imposed. Lslia filed Chicago, Illinois. the Bureau of Internal Revenue is concen- on two occasions, the first trial resulting an appeal and, while awaiting decision, he The Kreuger cases. trated in New X,rk City. From January 1, in a disagreement and the second resulting was murdered by rival gangsters an July Zelik Jasefowitz, Zurich, Switzerland. 1934, to June 30, 1936, there were 54 in an acquittal. He was then indicted in separations frum that service and olher 10, 1934. The additional tax liability in these the Southern District of New York on other disciplina~yaction was taken in 12 addi- These cases received considerable cases approximated $22,000,000 and tax charges and while the case was pend- tional cases following personnel invesliga- newspaper publicity because the individu- criminal prosecution has been recom- tiuns in that city. During the same period, ing trial, he was murdered by other gang- als concerned had carried on their racke- mended in most instances. sters at Newark, New Jersey. teering activities for several years without 41 other investigations of charges against Munay Humphries became notorious as serious interference by city or state employees at New York City were found to Secretary Morgenthau a racketeer because of his efforts to take enforcement agencies. They operated with be without fuundatiun and the empluyees Extends Policy of over A1 Capone's organization after Capone success until they were prosecuted crimi- were exonerated. Personnel Investigations had been sent to the penitentiary. He was nally on charges of income tax evasion and A recent investigatiun invulved offiiciala indicted for evasion of income taxes totaling this brought about their downfall in orga- When Secretary Morgenthau took office, and employees of the Customs Service $25,185 and pleaded guilty an October 26, nized crime. it was the established policy of Commis- at Buffalo, including the Border Patrol sioner Helvering to investigate applicants Service. This resulted in the removals far practically all paitions with the of the Collector of Customs, Chief Border

FOR OFFICIAL USE DNLV but prior to the incumbency of Secretmy the Attorney General then gave the case Patrol lnspcctor and the storekeeper at the had been cumnritted and that prosecution Morgenthau, Executive Order No. 61666 further consideration, and, if a decision to Customs Pat1.01 Base; and the demotion was warranted; also an offer of the services was promulgated, Section 5 of which was arrived at, the United States and transfer of the Assistant Collector of of the Bureau of Internal Revenue to the stated, in part: Attorney was authmized to proceed. Customs and a Border Patrol Inspector. United States Attorney in the preparation 'Xs to any case referred to the Depart- Beginning on April 30, 1936, through and trial of the case. ment of Justice for pmsecution or defense an informal arrangement between the During 1924, it was discovered that in in the couns, the function af decision Department of Justice and the office of Procedure in Disposition so~nrinstances untimely divulgence of whether and in what manner to prosecute, the General Counsel of the Treasury proposals for prosecution had proved or to defend, or to compromise, or to Department, the Penal Division resumed of Tax Fraud Cases ernharrassing. Accordingly, thereafter, for appeal, or to abandon prosecution, the practice of making recommendations some ten years, the casrs were fmwarded, or defense, now exercised by any agency as la prosecution. A situation with respect tn income tax direct by the Commissioner, to the appm- or officer is transferred to the Department Prior to he issuance of Executive Order fraud cases which is of serious concern to priatc United States Attorney. of Justice." Nu. 61666, and in accordance with the the lntrlligenee Unit at this time is the Occasionally questions arose which In accordance with his interpretatio~~of pmvisions of Section 3229 of the Revised reduced number of such cases which have caused the United States Attorneys to cnm- this Order, the Attorney General, on August Statutes, it was the practice of the Com- been forwarded to United States Attorney lnunicate with the affice of the Attorney 10th of the same yeas notified dl United missioner, with the approval of the for prosecution during the past three years, General as to points of law and matters of States Attorneys nut to present tax eases to Secretary of the Treasury, to settle by cum- and %hick)have been disposed of by the procedure. On Narch 13,1926, upon grand juries except when autholized by the pmmise certain types of criminal cases vourts during the same pel-id This reduc- request of the Atturnel General, it was office of the Attorney General. On January without reference to the Department of tion had been in spite of the fact that there arranged that a copy of the 29, 1934, the Attorney General requested Justice for the institution of criminal pro- has been an increase during these years Cornmissioner's leuer to the United States the 'Treasury Department to discontinue the ceedings. This practice in such cases is still in the nuder of investigations and recorn- Atturney be forwarded to the Department practice of sending cases for prosecution in effect. Huwever, befure the issuance US mmdations for prosecution by the Unit. of Justice, and, beginning on June 4, direct to United States Attorneys, and, the Executive Order in question, there were Investigation of the causes for this situa- 1926, forms of pmpused indictments were accordingly, orders were issucd for such certain cases which had been referred to tion has shown that it is due to a change in by attorneys in the General cases to be forwarded dkct tu the office of he Department of Justice for prosecution, the policy of handling this class uf cases. Counsel's office and furnished to the office the Attorney General. On October 31, 1934, but which, for various reasons, it was con- Prior to 1924, it was the practice of the of the Attorney General for the use of the the practice of making recommendations sidered advisable to settle by compromise. office of the Chief of the lntrlligence Unil United States Attomy. Aftrr March 28, and preparing and transmitting proposed It was the practice in that class of cases fur to forward reports of tax fraud investiga- 1929. on the request of the Attorney foms of indictments to the Attorney General the Commissionq with the approval of the tions to the Penal Division of ihe General General, the Commissioner also fom~arded was discontinued by the General Counsel. Secretary of the Treasury and the concur- Cuunscl's office for consideration by attor- a copy of the special agent's report to that With these various changes in procedure rence of the Attorney General, to effect such neys specially qualified thmugh training office, with the copy uf the letter to the effected as a result of the Executive Order compromise. However, since the issuance of and cxperirncr tu review pnlspectivr crim- Unitcd Scales Attorney. Accordingly, there of June loth, the office of the Attorney the Executive Order, the Attorney General inal cases. In each case in which the con- was a gradually inrreasing participation General instituted the practice of review- has interpreted this provision thereof as rlusion was reached that pmsecution was of the office of the Attorne" General in the ing the evidence and directing the United vesting in him sole authority of the compro- warranted, the Penal Division prepared ronsideration of tax evasion cases pro- States Attorney, in fonvarding a case to mise of such casea. Accordingly, the a commonicatiun fur the signature of posed for praserution. These developments him, to conduct an investigation and sub- Treasury Department since June 10, 1933, the Commissioner of Internal Revenue. with respect to handling criminal prosrcu- mit il report and opinion to the Attorney has had no responsibi!ity in the compromise addressed to the Collector of Internal tions of tax frauds had established an General as to the advisability of prosecu- of criminal cases after reference to the Revenue, for presentation to the United effective and satisfactoq procedure. tion. Upon receipt of the United States Depament of Justice for pmsrcution. States Attorney. This cunrrnuniration con- However, on June 10, 1933, after the Attorney's review of the case, the affice of Power to compromise such cases has rested tained s discussion rd the facts and the present administration hed taken office applicable law ronclusi~msthat an uffense FOR OFFICIAL USE ONLV FOR OFFICIAL USE ONbI entirely with the Department of Justice, and "I am told he has made many enemies, Statistical Summary of the taxing department of the Government and any number of powerful men have Work Performed by has had no authority to exercise judgment auempted to have him dismissed from in determining whether a compmmise the Service. The Intelligence Unit shuuld he accepted, or whether the mount "Not only Irey hut his men are threat- Bureau of Internal Revenue offered in compmmise is a pmper one for ened by those who are affected by the acceptance. Unit's investigations. This is to be July 1, 1919 lo June 30. 1936 These things have contributed to a slow- expected when their contact is with those ing up in the depositiori of &come tax who would defraud the Government. fraud cases, in their presentation to United "As previously stated, the value to the 1. Summarv of Investigations States Attorneys, and their disposition in Government is not shown in dollars and the Federal courts. From the point of view cents collected. While that is a tremen- 2. Tax Fraud of the Treasury Department, it is believed dous sum, stiU every case results in addi- that the policies in effect prior to the tional sums, due to other taxpayers making issuance of the Executive Order of June proper returns who might otherwise have 3. Charges Involving Personnel 10, 1933, tended to dispose of these cases failed to pay ta the Government all to more satisfactorily and expeditiously; and which it was entitled. 4. Enrolled Attorneys s return to such practices would be desir- "Again 1 state there should be no econ- and Agents able in the interest of the revenues of the omy in the office of the Intelligence Unit govern men^ uf the Bureau of Internal Revenue. The The Intelligence Unit is particularly Congress would do well to increase this 5. Miscellaneous Investigations gateful for numemus commendatory state- force by at least 50 men. Lack of sufficient ments by Federal Judges, United States help has resulted in many escaping who Attorneys, and other officials and persons should have been required to make addi- pmminent in public life. An instance of tional payments to the Government. such commendation is a statement by "When the Congtss finds, in a case such Honorable John J. Cochran of Missouri, as this, that by increasing the personnel it Chairman of the Committee on Expenditures can increase the revenue many times over in the House of Representatives, made on the cost of administration. it is folly for us the floor of the House durins the course of a not to provide for additional facilities. discussion on proposed reductions in appm- "The citizen who, thmugh the protection priations, and particularly with respect to of the Gavemment, is able to earn a large such a reduction in the appropriations for income should abide by the laws of the the Bureau of Internal Revenue, which country and pay such assessments as the would, of course, have materially affected statutes provide; and when they do not, it the penonnel of the Intelligence Unit. is the duty of the Government to see that Congressman Cochran complimented the they not only pay but that they be pun- Head of the Unit and favorably commented ished for evading our tax laws. on the accomplishments of the organization "The record of this Unit in the past as a whole. He stated, in part, as follows: justifies the statement that, if given proper personnel, the dishonest citizen will not escape,"

FOR OFFICIAL USE ONLY FOR OiilFllL USE ONLY 93 Summary of Investigations The Intelligence Unit Tax Fraud Cases July 1, 1919 to June 30, 1936 The Intelligence Unit July 1.1919 to June 30,1936

Fircsl Charges Enrolled Attorneys Year Tax Involving And Agents Number of Carer Investigated Additional Taxer And -Ended Fraud Personnel Applications Charger Fiscal Current Cumulative Penalties Recommended 6-30-20 83, . I10 Year Income Other 6-30-21 56 259 Ended Taxes Taxss Combined Current Cumulative 6-30-22 71 355 6~30~20 80 6~30-23 261 363 6~30~21 51 6-30-24 254 535 6-30-22 62 6~30-25 434 489 6-30-23 238 6-30-26 477 456 6-30-24 230 6-30-27 464 225 6-30-25 402 6-30-28 553 227 6-30-26 445 6-30-29 739 163 6-30-27 449 6-30-30 925 120 6-30-28 441 6-30-31 916 46 6~30~29 721 6-30-32 856 33 6-30-30 882 6-30-33 884 35 6-30-31 890 6-30-34 695 56 6-30-32 848 6-30-35 621 147 6-30-33 868 6-30-36 820 175 6~30~34 687 Total 9,109 3,794 6~30~35 595 6-30-36 778 'In~esligali~sol'e~rrnlled arrorne.w and agents hecame a functiorr ofthis Unit as dlpril 1, 1924. Total 8.667 "The large increase in rn~acellaneouscares during F~scalYear 1935 ir due lo adoption of the po1a.y of having all applicants for positionr in the Bureau ailnternal Revenue investigated b) the Intelligencr Unrl.

94 FOR OFFlCIAL USE ONLI FOR OFFICIAL USE ONLY 95 Results of Prosecution Enrolled Attorneys and Agents Applications and Charges April 1, 1924 to June 30, 1936 Indicted or arrested 1,445 Cases tried Fiscal Year Applications Charger Convictions 720 Ended Jacketed Jacketed Acquittals 84 7 lo8 Total 804 , . 79

Pending in United States Attorneys' offices, awaiting trial June 30, 1936

Pending in United States Atlameys' offices, without criminal action having been instituted 73

Note: The remaining raaer have been disposed a1 in

various ways, such as rornpmmise by thr Drparunenl of Justice, death of defendants, etc. Total

Charges Involving Personnel The Intelligence Unit Rer:ornmendation: July 1,1919 to June 30, 1936 Arcrptance 30,430 Hejertim 714 Indictments lndictrnsnn No ~ecornmendation 1,609 Division Separations Returned Convictions Acquittals Dirmissed Total 32,753 Collectors' Office 463 197 127 20 17 Revenue Agents Office 350 70 37 13 17 'Prohibition Agents' 706 257 109 49 44 Other Divisions 266 92 40 21 21 Total 1.785 616 313 103 99

Note: Action aurrrrnarieed &ow was the result 013,794 personnel irwpjiiyllions by the lnlrliig~nceUnil.

96 FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY 97 Summary Of Action By HISTORY OF charges against enrolled agents and attor- neys. That same year, the word "Special" The Committee On Enrollment and Disbarment THE CRIMINAL was dropped from the Special Intelligence Applicarlts rejected INVESTIGATION Unit's organizational title. In 1929, special agents were classified Rcprimallds FUNCTION in Grades 7 through 13. The salary range Suspensions 1936-1994 for Grade 7 was $2,600 to $3,100, and Ilisbarmmts for Grade 13, $5,600 to $6,400. Special This section briefly outlines significant agents were promoted to Grade 12 for Miscellaneous Investigations "specially me"torious service." Grade organizational and operational highlights. and The Intelligence Unit 13 was co~finedto the Special Agents in July 1. 1919 to June 30, 1936 surnmarlzes cases of Interest and slgn~ficance Charge of the large "divisions." The Special Intelligence Unit started in dur~ngthose periods 1919 with six former Post Office inspec- Fiscal Year Cases Completed tors. By 1930, the special agent stdhad Ended Current Cumulativa gmwn to 138, and by 1940, to 296. 6-30-20 86 86 General 6-30-21 98 184 The basic orga~uzationalstructure of the Intelligence Unit, like the Bureau of intenla1 The Late Thirties Revenue, remained essentially unchanged and the Forties fiom 1919 thruugh 1951. Jurisdictionally separate olgmizations, or "units," adminis- Fmm 1935 to 1943, the Intelligence Unit tered the different types of tax. Under that conducted an unprecedented number, arrangemml, the Intelligence Unit was a nearly 42,000, of 'hiscellaneoos" invcsti- centralized organization. Special agents in gations. These were background inveatiga- the field worked under the Special Agent lions resulting from the Unit's expanded in Charge of a geographic ma(called a responsibility during that period 10 investi- "division"). The Special Agent in Charge, in gate applicants for practically all Internal tum, reported di~cllyto the Chief of the Revenue positions, as well as applicants Intelligence Unit in Washington, D.C. for positiuns of importance in other During that period, the Intelligence Unit's Treasury segments. principal functions continued to be invesC- With the advenl of World War I1 came gating tax fraud, inwstigating charges additional duties in the firm uf assisting against Internal Revenue employees and Treasury's Foreign Funds Control Unit in 6-30-35 performing backgruund investigations of locating and freezing funds and other valu- 6-30-36 applicants for Internal Revenuepositiom. ables belonging to Axis-power aliens living In 1924, the Unit was also assigned the in the United States. This was done to Total responsibility of investigating applications deprive the enemy of resources that might of attorneys and agcnts to practice beforr finance espionage and sabotage. bate: Tlrr large inrrraae in thr fiscal years 1935 and 1936 is due lo the adoplinn af the policy of havalg all appli- In 1942, President Franklin I). Ruusevelt cants for pi~ionsin the Bureau uf Internal Revenue investigatrd by the lntellrgrnce Unit. In addition to these the TI-easury Drpmiment, and investigating figurn there were 5,070 inv~~tigatiurlrof taken fmm the relief mlls for rempomry pmitions with the sent a personal note to Unit Chief Elmer

Tr~aruryD~panrnent during the lidyrm 1935 and 1936. FOR OFFICIAL USE ONLY 98 FOR OFFICIAL USE ONLY Irey. Thr President warmly congratulated However, leading members of the ment. All were fined $10,000. And it vias Martin Hays Irey for organizing the Intelligence Unit, Chicago Syndirate, including Frank Nitti, largely the testimony of Willie Bioff that Former State Congressman and wrote: "As the years have gone by, the Louis Compagna, Wul de Lucia alias Wul led to the convictions. Boston. Massachusetts Intelligence Unit has become a shining Ricca, Phil D'Andrra, Charles (Cherry By 1947, most of the conspirators were In Fbbruary 1940, Martin Hays, who left mark not only of irwo~~uptibilitybut what Nose) Gioe, Francis Maritote, and Juhn granted parole after serving about one- his position as Republican floor leader of is just as important of A-1 efficiency. 1 Rosselli forced an agrreluent upon Browne third of their sentences. know how much quiet pride you have in and Bioff by which they would receive, the Massachusetts House of Representa- tives in 1936, was indicted along with four the reputation of the unit. Ipm taking this first, one-half and, later, two-thirds of all Enoch "Nucky" Johnson, others on charges of income tax evasion. oppwtunity to let you know I share in that that the two might collect from motion pic- Atlantic County Treasurer pride." ture exhibitors. All of the accused were stockholders in the After Wwld War 11, the Intelligence Unit The group succeeded in getting Brownt- For 26 years, Nucky Johnson was the Bay State Greyhound Association which concentrated on investigating tax evasion elected to the presidency of the union. political boss of Atlantic City. He made conducted dog racing at the Wonderland raws implicit in war-swollen profits, black Then, Bioff and Nick Circella, a Chicagu $12,000 a year as Atlantic County trea- track in Revere, Massachusetts. market activities, and the unprecedented night club operator and a member of thr surer and clerk of the New Jersey Supreme Louis Fox. Hyman Abranls and Mario amounts of currency in circulalion. To meet syndicate, were given union offices as per- Court. However, he spent $4,000 a year on Ingraffia, all former bootleggers, formed this increased work load, the Irrtelligence smal representatives of Bmwne. liquor, and $3,000 a year un lobster, caviar the Hay State Greyhound Association in firld force was increased to more than Earl) in 1935, all had been arranged and steak. He had a personal fleet of four 1934, and retained Hays, then a member 1;200 special agcnts. This rapid expansion and Bidand Bmwne, who were to be 16-cylinder Cadillacs, a $5,000-a-year of the state legislature, as counsel. necessitated the transfer "1 investigators spearheads, began to blackmail exhibitors suite in a swank New Yurk hotel and a According to the prusecutiun, it was from other enfon:rment agencies. of motion pictures in Chicago. 962,200-a-year New York apartment. decided among the defendants that. In May 1941, Bioff, Brown and Circella During a five-year investigation of all because of the ur~favorablrreputations of were indicted under thr Federal hti- the racketeers and contracturs in Atlantic the three ex-bootleggers, they would fur- City, several contractors and "Numbers Cases of the Late Racketeering statute. Circclla pleaded nish Hays with the names ofnorninees. guilty and Browne and Biuff went to trial. Syndicate" operators testified before grand Hays then supplied the names uf his rela- Thirties and the Forties Biaff was sentenced to ten years imprisan- juries that they had made graft payments tives, friends, chauffeurs and private sec- ment and Browne got right years. to Juhnson. Through his control of the retaly as nominees for Fox, Abrams, According la Elmer Irey, the first chief of police department and other law enforce- Ingraffia, and a fifth defendant named Intarnational Alliance of he IRS lntelligrnce Unit, "the income-tax ment agencies, Johnson furnished a nun,- Baron, as well as for himself. Thoatrlcal Stage Emplovaea phase of the case" led to the convictions her of illegal errtcrprises with absolute When the associatiun declared a divi- Louls Compagna at al. of the three. prntection frow molestation and also dend of $80 a share on Nouernber 30, Chicago, Illinois On March 18, 1943, an indictment was received graft un city and county contacts. 1935, dividend checks signed by Hays In July 1941, Johnsun went on trial for were sent tu Fox, Abrams, Ingaffia and George Browne llatl been a ~riemberand filed against thc actual leaders uf the syn- three counts of tax evasion for the years Baron instead of to the nominees. business agent fur the Chicago local of the dicate charging them with a conspiracy to 1935 - 1937. On Auyst 1, he was sen- All five pleaded guilty in April 1940. Intrnlatir,nal Alliance ufTheatrica1 Stage extort money from producers and exhib- tenced to ten years imprisonment, lined Barron was fined 5500, while Hajs and Employees. In 1932, he ran far president itors of motion pictures during the years $20,000 and ordered to pay the entire cost the three others were fined $2,000 each. of the union and was defeated. Soon aher, 1935 to 1940. That same day, Frank Nitti committed suicide. of prosecution. Bmwne was to meet and form a partner- ship with Willie Bioff, a former %st Cuast On New Year's Eve, 1943, seven uf the labor leader. conspirators were sentenced - one to seven years and six to ten years imprison-

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Thomas "Boss" Pendergast In January 1945, Tam Pendergast died, However, this was not the exlent of In December 1949, the US. Tax Court Political Boss "a broken political boss." Lustig's tax deficiencies. Lustig, his nephew upheld a Government claim 01$441,237, Kansas City, MO and a third man were subsequently indicted which included evaded taxes and fraud Robert Gould For two decades, "Boss" Pendergast domi- on 23 counts of tax cvasion for the yeas The Tax Court held that Nitti Whiskey Broker nated the politics of Kansas City, Missouri, 1940 to 1944. Two athen were also indicted waded tax on hundreds of thousands of Cincinnati, Ohio and Jackson County, finally cantrolling as part of the conspiracy and pleaded guilty dollars in income derived from such the state and becoming a national political In 1945, Rohert Gould, a Cincinnati to 22 counts. sources as the mutian picture exhibiton figure. , . whiskey broker, and the Dowling Brothers The investigation showed that Lustig extortion racket, partnerships in various According to a Federal District Court, Distilling Company, in which Gauld was understated his net income by $3,455,755 kennel club and horse racing ventures, sometimes Pendergast was described as a the principal stockholder, were indicted and his resultant tax liability by $2,872,766. and the slot machine business. "Political Boss" and sometimes as a "Party on 48 counts of violating rnaximum price Lustig and his fellow conspirators over- Leader," depending in part, "on the user's regulations under the Emergency Price stated purchases by $2 million and political filiations and irr part on whether Control Act in the sale of whiskey. understated sales by $1.8 million. The the boss-leader's power at the moment was The prosecution charged that Gould's ndlionaire also withdrew $2 million in at high or low tide. His throne room was a whiskey syndicate, and others like it, cash, maintained a safe deposit ban to hide The staff of special agcnts had gown to small monastic-like cubicle on the second caused the shortage of liquor in the Fall currency, and diverted a large part of the 1,622 by 1950. floor ofa two-story building, well removed of 1943 and early 1944; that the groups hat check tips received by employees of In the early 1950's. hearings of Senator from he business center of the city. "One started to buy up distilleries and great his restaurant chain. Estes Kafauver's Cornminee investigating thousand-nine hundred and eight Main quantities of 100 proof whiskey in 1941 After a manth-long trial, the three were organized crime generated concern about Street" was synonymous with power, it was and later sold the liquor at high prices in convicted. Lustig was sentenced to a four- the limited extent of enfurcement efforts lhe local Mecca of the faithful. To this the . year prison tenn and ordered to pay a devoted to the tax returns ofracketeers. Mecca came he who would be governor, he Gould and Dowling Brothers were con- fine. $115,000 In April 1951, shortly after the Kefauver who would he senator, he who would be victed; and on May 4, 1945, Gauld was Committee's second intelim report was judge, and he who was great and little, sentenced to sir years imprisonment and Frank "The Enforcer" Nitti issued, Internal Revenue initiated a craving audience and favors." fines of $240,000 were levied against him Chicago Racketeer Special Tax Fraud Drive to subject every Pendergast's downfall and the cullapse and the distilling compaoy. In June 1947, Frank Nitti paid his dues to the Internal known racketeer to a thorough tax investi- of his political organization occurred in after a negotiated setllement, Gould gave Revenue Service twice, once when he gation. A master list of nearly 30,000 1939 when he pleaded guilty to Federal the US. $2,500,000 - at that time, the was alive and another lime after he died. names was compiled for his purpose. The income tax evasion. Pendergast and Kobert largest single cash payment of taxes in a In the early 1930's. Nitti, a "public director of the drive used the facilities of O'Malley, former state Insurance fraud case. enemy" and a lieutenant in the Al Capone the Intelligence Unit in the National Superintendent, were charged with evasion liquor organization, pleaded guilty to fail- Office. Racket squads comprised of special of income taxes an $377,500 which they Henry Lustig ing to pay $173.000 on income of more agents, revenue agents and deputy collec- received far settling Missouri's $9,500,000 Restaurant Chain President than $700,000. For this violation, he was tors were formed in offices throughout the fire insurance rate cases in favor of the New York, New York sentenced to 18 months imprisonnrent and country, and were placed under the overall risk companies. In June 1945, Henry Lustig, multimillion- fined $10,000. direction of the Intelligence Unit's Special Pendergast was sentenced to 15 ~nonths aire president of the Longchamps rcstau- Over a decade later, Nitti and s number Agents in Charge. Support far the drive in prison, followed by three years pmba- rant chain, after learning Internal Revenue of other Chicago gangsters were indicted diminished rapidly in mid-1952, when lion and fined $10.000. O'Malley was sen- agents were planning to check his books, under a Federal anti-racketeering statute Congress did not appropriate the addi- tcnced to serve one year and me day paid the Government 81,800,000. for extorting money from motion picture tional funds requested, and officials real- fhllowed hy three years probation. and exhibitors. That same dah March 18, ized that many of the cases completed fined $5.000. 1943, Nitti committed suicide. involved small-lime hoods and petty gam-

FOA OFFICIAL USE 0111 FOR OFFlClAl USE ONLY blen. Soon after, the racketeer program During 19.57, the Intelligence Division Cases of the Fifties gambler However, the California Commis- was integrated with the overall Intelligence processed more than 30,000 applications far sion on Organized Crime, created by effort, with emphasis placed on inuestigat- rcnewal of enrollment cards. This resulted Governor Earl Wmen in 1947. identified ing the major racketeers. hrn a change in 1952 that limited the term Harold Gross Cohen, a former lieutenant of slain racke- In 1952, following a series of of enrollment cads to five years. Bookmaker teer Siegel, as the head of a major Congressional investigations into "tax- The decen@alization of Intelligence in Forest Hills, New York underworld gang in Southern California. fcxing" in high places, there was a compre- 1952. and subsequent speculation about Senator Estes Kefauuer. heforr: whose hensive reorganization of the Bureau of modifications, created considerable anxiety Newspapers referred to Harry Gm~sas the Senate committee Cohen testified in Internal Revenue. As part of the reorgani- and misapprehension among Intelligence "head of a Brooklyn bookmaking ring that November 1950, claimed that every facet zation, the Intelligence Unit's organiaa- personnel. Commissioner Dana Latham reportedly did a husincss of $20 million a of West Coast racketeering he explored led tional name was changed to Intelligence tried to allay these concerns by issuing the year." when he pleaded guilty to a charge him to Cohen. Division. Its criminal investigation pro- following message in 1959: of evading taxes for the year 1950. And by was investigated by five gram was decentralized, that is, integrated "As you know, the proper placement of 1951, Gross had begun serving an eight- Federal agencies and state, county and with other field revenue programs under the Intelligence function iu the overall year term for bookmaking and conspiracy. local authorities, but only the Internal District Directors. A system of regional Selvice organization was the ~uhjectof Yet after two convictions, his troubles with Revenue Selvice managed to come up with administration was established under considerable study at the time of the the Govenment did not cease. something that would stick against him. Regional Comnlissioners (initially called [1952] reorganization of the Service and In 1959, Gmss appeared before the Cohen was found guilty on June 20, District Commissioners). Thus were cre- subsequent to that time it has hem McClellan Committee and refused to testify 1951, on four counts of wading income ated the positions of Assistant Regional reviewed in the light of experience gained regarding cerwln payments he had received taxes for the years 1946 through 1948. and Commissioner (Intelligence) linitially since reorganization. I am fumly convinced for allegedly preventing a feared work stop- of having knowingly given a false financial called Assistant District Commissioner that the decision to place Intelligence at page in connection with deliveries of the statement to IRS agents. On July 9, he was (Intelligcnce)) and Chief, Intelligence the district level, rather than to establish "American WeeMy" magazine of the "New sentenced to five years in prison and fined Division. In addition. responsibility for a rrginnal or centralized or@zation, was York Joulnal American" newspaper. The 510,000 on each count: the sentences conducting character and conduct investi- a wise one. It not only permits a more uni- possible work halt was a result of rivalry to run concurrently and the payment of gations of employees was reassigned to the form organization but it provides the between the Teamters' Union and the $10.000 to satisfy the hes in full. recently created Inspection Service. District Director with an effective czirninal Newspapers and Mail Deliverers' IJnion. On February 14, 1952, Cohen was On July 9, 1953, the Bureau of Internal enforcement arm, responsive to him, at the On October 15, 1959, Gross was committed to McNeil Island Federal Revenue became the Internal Revenue level where coordination with Audit and indicted on six counts of tax evasion for Pmitentiary. He was released an parole Service. Collection Division activities can best be the years 1953 through 1958. The charges on October 9, 1955. On December 1, 1955, the Intelligcnce maintained, supervised and evaluated. were based on Gross' failure to report the In 1958, large amounts of newspaper Division issued its fira Wanted Circulaz It These and other advantages of the present payments on his tax returns. Gross was publicity began to appear, which played up was for Ralph "Shorty Ralph" Caleca, who Intelligence organization are such that it convicted on all six counts; however, his the fact that Mickey Cohen was living in a was described as a cigarette dealer, gam- will remain at the district level ..." conviction was later reversed by the US. grand style while owing the Government a bler and general racketeer. Caleca. a fugi- The 1950's also ushered in wagering tax Court of Appeals, Second Circuit. On substantial amount of money (liabilities of tive from justice, had been indicted in St. enforcement, which is discussed in the retrial, Gross was convicted on two counts previously evaded taxes). IRS also began Louis, Missouri, and was wanted for Lnvestigative Projects section helow. of the original indictment. receiving letters which asked in essence, income tax evasion and conspiracy to "Why isdt Mickey Cohrn in jail?'' dcfraud the United States. Mickey Cohen Prohibited by law from disclosing what Los Angeles, California role they had laken or planned to take in Michael "Mickey" Cohen, or Meyer the Cohen casc, IRS was nevertheless Harris Cohm, always insisted he was a gathering information on Coheds finances.

FOR OFFICllil USE ONLY In the meantime, ex-gambler Cohen's On July 1, 1961, District Court Judge Joseph Nunan Consider the former way of life of Frank George Roldt sentenced Cohen to 15 partnership in a landscaping and plant H. IRS Commissioner Costello, a mul who has been repeatedly rental business and his excursion into yean in prison and fined him $30,000. In New York and Washington, DC ~alleda leader of organized crime. He lived the ice cream parlor business had flopped his pre-sentence remarks, Judge Eoldt in an expensive apartment on the corner From March I, 1944 to June 30,1947, and he was attempting to sell his life story called Cohen "an excellent specimen of of 72nd Street and Central Park West in Joseph Nunan was the United States Cam- for a movie. decadence in society." New York. He was often seen dining in missioner of Internal Revenue. Before However, Cohen was making and spend- well-horn restaurants in the company of 1944, he had served as a tax collector and ing money. He received an enormous Harold John Adonis judges, public officials, and prominent busi- a State Senator hmQueens County, New amount of money in the form of loans, Roseland, New Jersey nessmen. Every morning he was shaved in much of which was actually the product York. After resigning his post as Commis- Harold John "Joe" Adonis was a former the barbershop of the Waldorf Astoria of fraud and extonion; the Government sioner, Nunan joined a W'ashingt~tonlaw fum. executive clerk in the office of er-Governor Hotel. On many weekends he played golf was later to chage. Nunan played a prominent role in hear- Alfred E. Driscoll of New Jersey. at the cormby club on the fashionable North On September 16,1959. Cohen was ings before the King Subcommittee in In the late M's and early 50'3, New Shore of Lang Island. In short, though his arrested by Internal Revenue agents and 1951 and 1952. The subcommittee called Jersey began to investigate organized gam- reputation was common knowledge, he charged with willful fling of false and IRS special agents and Nunan himself to bling in the state. In the midst of this moved amund New York conspicuously fraudulent income tax returns of the years tes~ifyabout his finances. probe, in November 1950, Adonis left the and unashamedly, perhaps os~racizedby 1957 and 1958, attemptins to evade pay- On December 2,1952, Nunan was country. some people hut more often accepted, ment of past taxes, concealing income by indicted on five counts of incorne tax eva- While Adonis was in Europe, he was greeted by journalists, recognized hy fraudulent means and giving a false state- sion covering the years 1946 to 1950. He charged by the state of New Jersey with children, accorded all the freedoms of ment to an Lnternal Revenue agent. went on trial in June 1954, was convicted receiving large sums of money from racke- a prosperous and successful man. On a The trial begam anon May 2,1961, and and sentenced to five years imprisonment teers as graft in connection with the pro- society that treats such a man in such a lasted eight weeks. It featured a parade of and a $15.WO he. tection of gambling interests in northern manner, organized crime has had an impact. witnesses, from strippers to authors, from The 16-day blal was highlighted by testi- New Jersey. Mentioned in the indictment anived in New York in TV comedians to clergymen. mony of gambler Frank Erickson. Erickson werc Frank Erickson and , 1895, having been born in four years The jury was instmeted on June 28, and testified that he lost a $1,800 bet to Nunan knuwn racketeers. earlier, in 1891. decided that Cohen was guilty of eight of that President Truman would not be re- Adonis voluntarily returned from In 1915, CusteUo was convicted of car- the thirteen counts in the indictment. The elected in 1948. He said he gave Nunan, Holland in 1952 and was arrested upon rying a gun - this was to be his only con- jury concluded that much of what Cohen who waa backing Truman, odds of 9 to 1. debarkation in Hahoken. viction for almost forty years. claimed were gifts or loans were actually: Nunan claimed he did not report the win- He was indicted an Decembcr 10, In 1946, the Federal Bureau of Narcotics 1) compensation for promoting a hook nings on his tax return because it was offset 1952, for evasion of his 1948 income tax, charged that Costello headed a nationwide called "Gus the Great," 2) compensation by other gambling losses during the year. subsequently found guilty of tax evasion, dope syndicate. In 1950, the California for promoting the career of an aspiring and sentenced to five years in prison. Commission on Organi~edCrimp declared singer, 3) compensation for settling a row Frank Costello The principal evidence an which Adonis that Costello headed a slot machine syndG between some vending machine operators, Gambler wras convicted consisted of his expendi- cate that took in $2 hillion a year, of which 4) money obtained through deception, and New York, New York tures, mainly with $50 hills and $100 $400,W0,000 was spent to bribe public 5) life story income. He also received bills, to build a $45,000 house in The Report of the Presidanfs Crime officials throughout the country loans from persons who hoped he would Roseland; New Jersey. The house was built Commission, published in 1967, contains Costella was indicted for offenses a "turn to Christ" or subject himself to psy- in 1918 when he received a yearly salary the following passage on the impact of number of times -for bootlegging, for chiatric study. of $4,250 fmm the state. organized crime on American life: tax evasion - but was not convicted.

FOR OFFICIAL USE ONLY However, on March 11, 1953, he was In the fall of 1957, Anastasia was mur- Klein and his fellow conspirators took returns. He was subsequentiy convicted, indicted on four counts of wilfully attempt- dered by two gunmen as he sat in a bar- advantage of the limited supply of whiskey sentenced tn five years and fined $20.000. ing to evade or defeat a large part of his ber's chair in a New York hotel. in the United States during X70rld War I1 On appeal, two charges were dismissed, but income tax for the years 1946 through by marketing, at excessive prioes, an infe- this did not reduce Beck's prison sentence. 1949. Costello went on trial in April 1954, Abner "Longie" Zwillmen rior Canadian whiskey They created 37 and was convicted on three of the four Bootlegger foreign corporations through whch they Pete Licavoli counts. He was subsequently sentenced to Newark, New Jersey manipulated whiskey profits of some $20 Racketeer five years imprisonment ahd fined Detroit, Michigan million in an attempt to make it appeu~ ~ "Longie" Zwilhnan was knom as the "AI $30,000. A Federal Court of Appeals later that the profits were derived from sources Capane of New Jersey," because of his Federal District Court Judge Alexander reversed one count, while affirming the outside the United States and therefore not notorious racketeering activities and Holtzoff noted some "interesting and illu- other two counts. subj~ctto U.S. income taxes. Pmhibition Era nm-mnning. minating facts" in Pete Licavoli's pmba- On September 23, 1955, Klein was sen- In 1952, the Internal Revenue Service tion report, when the latter appeared Albert Anastasia tenced to serve four years and pay a fine of claimed that Zwillman owed the Govern- before him far sentmcing, arising out New York, New York $8,000. Two other conspirators were given ment over $7M),WO in additional taxes, of a Congressional contempt citation. smaller prison terms arid fines. Albert Anastasia, a reputed member of penalties and interest for thp years 1933 Judge Holtroff observed that Licavoli Murder, Inc., the Brooklym syndicate that tkrough 1944 and attached a lien in that was a "notorious figure of the Detroit Dave Beck was crushed in 1940, wcnt on trial in 1954 amount against his assets. Later, Zwillman undenuorld'" and head of the famed Purple Seattle. Washington far tax evasion for the years 1947 and 1948. paid IRS $119,122 of the hack taxes. Gang which had its origin during the On November 23,1954, the jury reported it On May 26, 1954, Zwillman was In 1957, Dave Beck was president of the Prohibition era. He was a runner of was hopelesily deadlocked and a mistrial indicted for evading taxes for the years International Brotherhood of Teamsters, whiskey fmm Canada during Prohibition was declared. 1947 and 1948. The caje finally came to which at that time was the biggest labor and had an interest in every major gam- At a second trial, Anastasia entered a tlial in 1956 and ended in a hung jury. union in the United States. However, by bling operatian im Detroit. He also had an plea of guilty to evading $11,743 in taxes Indictments were later returned against October of the same year, Beck would no arrest record two pages long, including a over the two-year period. He was hed two Zwillrnan associates, charging them longer he president and would be under pair of felony convictions 25 years apart. In $20.000 and sentenced to a year in prison. with bribing jurors in the 1956 trial. indictment for gand larceny and tax 1933, Licavoli was sentenced to two years Anastasia concealed his source of In February 1959, Zwillman committed evasion. imprisonment for vying to bribe border income and his expenditures by dealing suicide in West Orange. New Jersey, after The Senate Labor Rackets Committee patrol officials checking on his ~m-~n- only in cash and making purchases his two associates pleaded guilty to bribing was to bring Beck unwanted headlines that ning activities. In 1958, he was sentenced through third parties and numerous a juror and were sentenced to lengthy year, as it spotlighted his personal use of to two-and-a-hdf yearc imprisonment and aliases. But agents, using the net worth- prison terms. mion funds for construction of his home ordered to pay a $10,000 fine after plead- expenditures method, found unreported and even the purchase of five dozen dia- ing nolo contendere to one count of expenditures relating to conskction of a Hyman Harvey Klein pers. A criminal investigation of his income tax evasion. palatial residence, dabora~efurnishings Whiskey Distiller ties during the period 1950 to 1953 showed Licavoli attempted to conceal his unre- and personal automobiles. Baltimore, Maryland Beck misappropriated some $365,000 fmm ported income by dealing in cash and Prior to Anastasia's second trial, he cashier's checks, operating through nomi- In 1954, Hyman Harvey Klein, a whiskey various union entities with which he was made a motion for a change of venue associated. nees and "dummies" and failing to either distiller. and eight others were indicted for hecause of local newspaper stories dealing went on trial on November 10,1958, record or report many of his business attempting to evade Kleids income taxes He with the disappearance of a prosecution for hillfully attempting to evade his per- activities, other than to list a flat amount for the yeaM 1944 through 1946 and for witness and his wife from their hloodsplat- ~onalincome tax and preparing false for "speculation." conspiracy in connection with the tered home in Miami. attempted evasion. ill health, claiming that his pmsecution Abraham Minker with John Wittig and scvrn other defen- The Sixties would probably result in his death. Gambler dants, who were arrested in the Berks Sachs was later examined by n govem- Reading, Pennsylvania County raid. There were 1,418 special agents in the ment doctor who said that, in his opinion, All pleaded guilty, except Minker and Intelligence Division in 1960. During the Summer of 1959, Internal any fatal outcome due to the prosecution Wittig, who went on trial in November 1960. On January 1; 1960, all investigative Revenue Service agents conducted an inten- and bid of Sachs was "remote indeed.'' A mistrial wa. dcclared after a Philadelphia functions involving persons enrolled or sive investigation of gambling operations in Lamv Caudle was head of the Justic.e newspaper referred to Minker and Wittig as T applying far enrollment to practice before the vicinity of Reading, Pennsylvania. Department's Tar Division at the time. He "gamblers" and the defense claimed it was the IRS were transferred to Inspection. Suspected numbers witers and operators disregarded the recommendations of the prejudicial. This was done to permit Intelligence to were placed under surveillance. government doctor and the IRS agents Minker and Wittig went on trial again in concentrate its cfforts on invesligating On October 3, 1959, a raid was con- and ordered that the case he treated March 1961. This time, Wittig was acquit- criminal tax violations. ducted on a Reading gambling establish- civilly tcd and Minker was convicted on five of The introduction of automatic data pro- mcnt, during which adding machines, Sachs and Schwimmer also received seven counts of the indictment. cessing (ADP) systems into IRS during the numbers slips, summary sheets, and mli- help from another high government official, On October 25, 1961, he was sentenced 1960's created new tools for Intelligence oua other articles essential to a large-scale Matthew Connclly, President Truman's to serve four years in prison and fined to ferret out tax fraud. ADP would be used numbers operation were seized. On the appointments secretary. August 1948, $35,000. In to detect unreported income and to iden- same day, the apartment of Abe Minker, Connelly called the IRS Chief Counsel tify frauddent returns, false claims for alleged rackets boss, was searched, but no Matthew Connelly and about Schwimmer to "let you know we refund and failures to file. It would also incriminating evidence connecting him to Lamar Caudle know him." In September 1949, Connelly permit the high-speed analysis of volumi- the gambling operation was found. White House Appointments called Caudle requesting nous business rccords to establish and On March 25.1960, agents conducted Secretary a delay in the Sachs case for his "fricndl' document tax evasion. For the first known anothe~raid on a numbers bank in a farm- Head of the Justice Dapartmant's Harry Schwirnmer time in modem criminolog): ADP was used house in Berks County. .4gain V~~OUS Tax Division Sachs rewarded Schwimmer for his ser- to coordinate information that culminated adding machines, numbers slips and a tally St. Louis, Missouri and vices with $46,000. Schwimmer, in turn, in the indictment in 1965 of 86 alleged sheet were seized Howcver. no duect eri- Washington, D.C. rewarded Cannelly and Caudle with a suh- baok-kers in the New York City area. dence of Minkds uartici~ationin the lotten stantial portion of that sum. Schwimmer While addressing the ~aduatesof was found. In the late forties, Irving Sachs, a St. Louis also purchased an oil royalty and two Intelligence's Special Agent Basic Training In the interval between the two raids, manufacturer, was in tax trouble. Agents made-to-order suits for Connelly. School on April 13, 1962, Attorney IRS agents had arranged with Anthony of the Bureau of Internal Revenue recom- Schuimmer, Connelly and Caudle were General Robert F. Kennedy commented: Damore. a trash collector, to permit them mended that he be prosecuted for tax indicted for conspiring to defraud the 'X lot of the success we have had to examine the contents of a trash bsml fraud. United States of the proper administration [in dealing with organized crime] used in common by several tenants in the Realizing his difficult situation, Sachs of the Internal Revenue laws. U. due to the Treasury Department.... apartment house where Minker lived. The employed a Kansas City lawyer, Harry Soon after the beginning of the trial, AN the efforts that have been made - contents were examined off the premises, I. Schwimmer, for the express purpose Sehwimmer wifered a heart attack. A mis- the Intelligence Divuion carrykg the and the agents retained certain adding of thwarting his threatened c~irninal trial was granted to him and the case pro- bmnt dthem -have been very machine tapes and other slips of paper. prosecution. ceedcd against the other defendants. successful and very effective. Handwriting identified a Minkeis Schwimmer first tried to show that Sachs In March 1957. both Co&elly and SO, your work G ?f great importance. appeared on many of these items. had made a voluntaq disclosure, which was Caudle were convicted, sentenced to two It not just the fact that you are On May 26, 1960, Minker was indicted proven false. He then sought to protect his years imprisonment and fined $2,500. dealing mith a pnicular individual for evasion of excise taxes on wagers along client from criminal pmsecution because of who has broken the law, but, in the larger eontat, the fmt thatfor the .mruiaal of his carmtiy, there has to The 1960's also introduced a major Accardo, even before his widely publi- Johhny (Dioj Dioguardi be respect for the lat~,.The only way kveon organized crime and, later. the cized tax trial in 1960, had his tax proh- Labor Racketeer there LT going to he respect for the law beginning of the Strik~Force concept. lems. In a 19% Tax Court case, which New York, New York is ifyou and I meec our responsibilities These are discussed in the Investigative detailed the bookmaking operations of a The Senate Labor Rackets Committee. in this importontjiield." Projects section below. night club in which Accardo held a 50- before going out of existence in March percent interest, Accardo and his partners kt 1965, considerable adverse publicity 1960, issued a report which said in part, were rcquired to pay the government addi- was generated by heqngs pf Senator "working by themselves, such racketeers tional money. Edward \! Long's subcommittee that focused Cases of the Sixties as John Dioyardi...p resent a dangerous Ew years later, Accardo found himseU in on the Intelligence Division's use enough problem, hut when they have the hotter water. He was indicted by a federal of elech-onic swveillance devices. Charges backing of top officers of the nation's grand jury in the Northern District of were made that the use of electronic devices Frank "Buster" Wortman largest union, particularly James R. Hoffa, Illinois on three corms of making false was widespread and that they were used in St. Louis Racketeer now its general president, the situation statements on his tax returns. Between connection with the routine investigations becomes one for national alarm." In January 1960, Frank Wortman, a major 1956 and 1958, Accardo received salaries of ordinary taxpayers. Nearly 50 IRS Committee Chairman Senator McClellan figure in St. Louis racket activities, espr- ranging from $40,000 to 560,000 as a sales officials and agents appeared at public said that Hoffa helped Dio in trying to take cially gambling and jukehox machines, promoter for the Premium Beer Sales com- hearings between July 1965 and Apd over the campaign to organize the New was indicted, along with five of his associ- pany and claimed that 80 to 90 percent of 1967. Numcmur other employees were York taxi drivers and supported Dio in an ates, for conspiring to evade his income his automobile expcnses were incured pro- interviewed by the subcommittee staff. attempt to grab control of Joint Council taxes from 1944 to 1960, by concealing moting beer saic~. A spccial 1% inquiry board was set up and #I6 of the Teamsters. his interest in a number of clubs and busi- The government claimed the expenses conducted exhaustive inquiries. Thcse were In addition to assisting Hoffa, Dio had ness establishments. stated were false and .4ccardo knew it. expanded beyond Intelligence Division led a varied career on his awn. In 1937, On February 26, 1962, after a seven- During the trial, the government proved activities to also include those of the he was sentenced to three to fiuc years for week jury trial, Wo~ortman,Elmer "Dutch" that Accardo was paid more than either the Alcohol & Tobacco Tax Division and the extortion; in 1954, he served 60 days for Dowling and Gregoy Moore were found owner or president of Premium. In addition, Inspection Service. There were numerous wiilful failure to He New York State yilty on the conspirac~counts. a large number of Premium salesmen and instances of electronic device use reported, income tax returns; he was sentenced to On March 3, 1962, Dowling and his bookkeepers. who would naturally come in both legal and questionable. However, the two years for conspiracy and bribery af a bodyguard were murdered. Their hodias contact with a sales promoter, had never IRS hoard found no evidence of improper labor representative in 1957; also in 1957, were found on a lonely country road seieral seen nor heard of Accardo. use other than in cases where the individu- he was sentenced to 15-30 years for entor- miles fmm East St. Louis. One of the items After a trial of nearly nine weeks, .4ccardo als were engaged in criminal or illegal alactiv- tion, hut his conviction was later reversed; found on Dowling's body was a napkin on was convicted on ail three counts and wa it?, with no spiU-OYCTto "ordinary" CBSPS. and he was indicted in 1956 on charges which was witten the names of three of sentenced to a total of six years in prison The board also concluded there was no relating to the acid blinding of labor lhe jurors who sat at the Wortman rrial. and hed $1 5,000. basis for holding individual employees columnist Victor Riesel. On January 5, 1962, the L.S. Court of accountable. IRS corrective action included On April 7, 1960, Dio and his reputed .4ppeals, 7th Circuit, reversed Accardo's establishing a clear policy and detailed bodyguard, Theodore Ray, were found Chicago, Illinois conviction because certain prejudicial inlor- proscriptions on the techniques involved. yilty of income tax evasion for the years matian was admitted into evidence and In the years following the assassination Senator John McClellan once called 1950 to 1952. An operator of a women's because of prejudicial newsp& publicity of President John E Kennedy in 1963, Anthony Joseph Accardo, who testified apparel store and a president of a union special agents of the Intelligence Division before McCleUan's Senate Rackets testified that they solicited the aid of Dia have been called upon to assist the U.S. Committee, "the successor to Frank "The and that funds were siphoned off from Secret Service in the protection of the Eniorcer" Nitti and Paul "The Waiter" their hms to Dio through Ray as a can- President and other officials. Ricaa as the head of the Capone empire."

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY duit. Dio and Ray did not pay taxes on On July 11, 1958, Goldhe testified 19h0, a jeopardy assessment, in the amount one-quarter of taxes due on the "day" these funds. before the subcommittee, refusing to of 8183.267. was made against Donovan numbers game. Second, they paid no taxes Dia was sentenced to four years impris- answer 22 questions. On August 13, the far excise and occupational taxes and at all on the "night" game. onment and fined $5,000: while Ray was House adopted a resolution citing Caldhe applicable penalties. Andrews and his seven ca-conspirators sentenced to ten months imprisonment and for contempt of Congress; Coldfine was On March 15. 1960, Donovan was were convicted and sentenced to five years fined 5500. convicted of this charge on July 24., 1959. indicted by a special grand jury for viola- in prison and a fine of $l0,000 each for Three years after serving his term for Dwing the summer of 1958, IRS agents tion of the federal wagering tax statutes. evading $387.555 in excise taxes. tax evasion, Dio wasarrested again and started their investigation of Cktldfine intrr- On the fourth day of his trial, Donovan ests and in October 1960, Gnldfm went charged with conspiring with others to changed his earlier plea of innocent to Sam Mannarino conceal some $34,000 in assets belonging on trial for evading $450,961 in personal guilty after viewing aolored motion pic- Gambler to a bankrupt firm income taxes for the years 1953-1957 and tures of his numhers operation taken by New Kensington, Pennsylvania $340,7% in corporate taxes for the years IRS agents prior ta the raid. Bernard Goldfine 1952.1957. The IRS had already made Sam Mannarino was identified by the FBI Donovan was sentenced to four gears Boston Industrialist a jeopardy assessment against CXdfine's as the leading rackets figure in Westem in prison. property in the amount of $2 million and Pennsylvania for 30 yew. The foundations of the Eisenhower Admin- ~~ ~ a $5 million claim against his textile mill. In 1961, IRS agents conducted success- istration shook on June 5, 1958, when the Frank "Screw" Andrew In June 1.961, Goldfine was fined fill raids on the Mannalino wagering oper- chairman of the Special Subcommittee on Gambler $110.000 and sentenced to one year and ation in New Kensington and charged him Legislative Oversight mounced that he Newport, Kentucky one day for tax evasion. An additional six- with income tax evasion. He was convicted had authentic information that the Federal month sentence was suspended on condi- Far years the newspapers in the Cincinnati and served one year in the federal prison Trade Commission (FTC) and the Securities tion that Goldfine pay the $5 million tax and Northern Kentucky area referrcd to in Lewisburg, from which bc was released and Exchange Commission (SEC) had claim and tell the U.S. Attorney and the Frank '"crew" Andrews as the "kingpin" in 1965. been subject to pressure fmm high govern- Federal Grand Jury about a huge slush of the numbers racket in that area. In June 1967, Sam Mannarino died at ment officials "in respect of" several com- fund used by Goldhe interests. In 1954, he was convicted on a state the age of 61. panies controlled by Bernard Goldfine, charge of operating a numbers lottery, but Boston industrialist. The Chairman said Harry L. Donovan served only 13 months of a ane-to-scum Benjamin Dranow the subcommittee had evidence that Presi- Virginia Numbers Operator year sentence. Minneapolis Department dential Assistant Sherman Adams and Richmond, Virginia In September 1956, he pleaded guilty to Store Owner one or two senators, and perhaps represen- a charge of willfully attempting to evade the tatives, had occupied hotel rooms in In Januruy 1960, fourteen IRS special hr July 1957, Ben Dranow was scheduled federal occupational tax on slot machines Boston paid for by Goldbe. agents and six Deputy U.S. Marshals to appear before the Senate Lahor Rackets and received a sentence of me year and Later testimony before the subcommittee raided a "counting house," and the Committee, headed by Senator McClellan, one day in the federal penitentiary revealed that Adams had accepted gifts Richmond Amusement Sales Company, but it was November 1958 before he Chases stemming horn an August 1961 of a vicuna coat and an oriental lug fmm which was owned and operated by Harry testified. On that occasion. Dranow raid on the Sportmads Club were made Goldfine and had telephoned FTC officials Donovan, the "kingpin" of the Virginia invoked the Fifth Amendment 37 times against Andrew and seven others. They with regard to Goldfine's business practiccs. numbers racket. when questioned by Committee Counsel sere accused of conspiracy, willful under- Adams denied the charges that he had In their search of the two locations, Robert Kennedy. statement or failure to pay excise tanes, via- improperly used his influence on behalf of agents discovered nine large bags of num- In his book; "Crime Without Punish- lation of the FCC Act, and failure to register Goldfine. Reluctantly, he resigned his post bers bet slips, $6,000 in currency, adding ment," McClellan discussed the relation- and pay the wagering occupational tax. on Septemher 22. machines, a strong box, notebooks and ship between Dranow. the International The conspirators used two schemes to other wagering paraphernalia. On March 9, Brotherhod of Teamsters, and Jimmy evade the taxes. First. they reported about Hoffa:

FOR OFFICIAL USE 0117 114 POI OFFICIAL USE ONLY 115

7 "Tpamter welfare funds in the amount Norbert Roll exhibited by Holarachka. who, in his lust and pleading guilty to conspiracy to evade of 8l,ZOO.OOO were invested in a Campbell County, Kentucky for wealth and powel; increased his income payment of taxes. Minneapolis department store run by Sheriff from a paltry $5,123 average a year as a In February 1962, Chacharis and eleven Benjamin Dmnm. This store weni into lawyer to amounts far exceeding the mari- other Indiana men, including the Shcriff of In 1956 and 1957, Norbert Roll was mas- bankruptcy soon tkrerrfier, and Dranow, mom salary of $12,000 provided by statute Lakc County and live membcrs of the city ter commissioner of Campbell Circuit an associate andpiend of Hoffa's drew far the prosecutor of Lake County. council of Hammond in 1955, were Court. He became sheriff in January 1958. out $115,000 of th~coqany'sfind.~ His receipt in his bank account of indicted on income tax charges. but was ousted from his position in 1961 immediately before k bankruptcy $327,000 in small cash denominations Specifically, the Gary mayor, who immi- by Covernor Bert Combs far failurc to Greece petition rumfiled. " which was unexplained by him, obviously grated from in 1919, was charged enforce vice laws. On January 13, 1961, Dranow was was from vice and gambling activities with receiving $226,686 in payoffs from In December 1961, a criminal informa- indicted on 21 counts of mail fraud, which owed to Holovachka every cent of coneactors who did business w"th the cir); tion was filed against Roll on four counts wire fraud and bankruptcy fraud. The gov- that money for their continued and suc- Tcn city and state officials and citizens of willfully failing to file income tax ernment chargcd and later proved that cessful operation in defiance of the law served as conduits and intermediates who rehlrns. He was convicted and sentenced to Dranow caused fictitious, fraudulent mer- which it was Holovachka's sworn duty to hmneled the kickhacks to Chacharis. one year in prison. chandise inventories and false accounts uphold and enforce. Chacharis was chargrd with paying only receivable totaling $449,000 to be rnrered This was utter depravity and moral $23,939 tax an $67,120 of declared Metro Holovachka in the records of the John W. Thomas turpitude of the rankest sort. income for 1955 through 1958, while the Prosecutor Company, a department store. Aftcr a six- Halorachka was disbarred on four government contended he actually had Lake County, Indiana week trial, Dranow was convicted on 18 specific charges: 1) for his tax fraud con- 9239,806 in income and should have paid of the 21 counts and sentenced to seven In June 1959, Metro Holovachka was viction, 2) for failing to prosecute persons $191,355 in taxes. years imprisonment and ordered to pay called to testify hefore the McClellan guilty of vice and gambling violations, After his gnilty plea, Chacharis was sen- a $12,000 heand $5,000 court costs. Committee. However, the Lake County 3) for purchasing and selling bonds in Gary tenced on January 18. 1963, to serve three A little over two weeks latcr, on prosecutor refused to answer numerous when he was city controller, violating local years in prison and pay a fine of 810,000. September 8; 1961, Dranow was indicted questions asked of him by Committee ha,and 4) for his offensive conduct in his on three counts of income tw evasion. Counsel Robert Kennedy. dealings before the McClellan Committee. Harold Turk On April 26, 1962, ha was convicted on Shortly after his Committee appearance, Miami Beach Mayor George Chacharis charges of failing to report about 540,000 Holovachka resigned his position. In September 1962, Harold Turk, Mayor In 1961, Holovachka was indicted on Mayor of income between 1955 and 1957 and of Miami Beach from 1949 to 1951, a tax evasion charges for evading $39,000 Gary, lndiana defrauding the government of approxi- member of the Beach City Council from in taxes for the years 1955 thmngh 1957. mately $9,600 in income taxes. He was "It's when you get to the top of the heap 1937 to 1955, a member of the board of His aggregate income during this period sentenced to another seven-year prison that everybody tries to knack you off. The Brandeis University and a well-known was $179,543 over and above the amount tern, which was to run concwrently with climb up is tough, but staying on top is layer, was charged with failing to file the mail fraud sentence, and hed he actually reported. tougher." income tau returns for the years 1956 Holovachka was subsequently convicted $10,000. These wards werc spoken hy Gary, thmugh 1960. His income for this period and sentenced to three years imprison- Dranow's problems with the govern- Indiana, Mayor George Chacharis four was $236,525. ment. And in 1964, the Supreme Court ment did not end there. On June 4, 1963, days before the start of his 1962 income Turk waived a jury trial, suffered a men- of Indiana disbarred him for life. Dranaw was indicted along with Jimmy tax evasion trial. tal breakdnm which delayed his trial and In the Couris majority opinion, Chief Hoffa and five others on 28 counts of mail One month later, Chacharis was to vol- finally pleaded guilty in August 1963, to Justice Frederick Landis said: "It is and wire fraud in a schcme to defraud untarily take himself from the top of the failing to file a 1957 tax return on $77.089 difficult to conceive of a clearer examplr thc Teamsters' pension fund. Dranow and heap by resigning from his office as mayor in income. The other charges were of illicit or dcpraved conduct than that here Hoffa were convicted. dropped.

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Turk was sentenced to one year in Following a trial of nine days, the jury James Landis Deering was fined $18,000 and placed prison, nine months suspended. He was returned a verdict of guilty against each Presidential Adviser on probation for one year. In sentencing also ordered to pay a $5,000 line. defendant. All were sentenced to three- New York, New York Deering, Judge Thomas Croake gave con- year prison terms. sideration to the defendent's physical con- James M. Landis had a brilliant career Richard Gosser dition. Lawyers for Deering claimed that in government. He was an adviser in the Labor Leader Joseph "Newsboy" Moriarty the banker "had an organic deficiency" Roosevelt, Truman, and Kennedy Admini- Toledo. Ohio Numbers Operator and that "this in part could explln his strations. He also served ai chairman of Jersey City, New Jersey apparent character change from honesty hior to October 1962, the Internal Kev- the Securities and Exchange Commission, to its converse." enue Service had initiated an investigation From a newsboy selling tabloids in the chairman of the Civil Aeronautics Board of the income tax returns of Richard bars and restaurants of his neighbarhood and as a member of the Federal Trade Joseph "Doc" Stacher GOSSPI;the senior International Vice to Jersey City's numher one numbers Commission. He had also been Dean of Gambler President of the United Auto Workers. boss - this was Joseph Moriarty's story Harvard Law School. Beverly Hills. California The claims against him were subsequently He was arrested no fewer than 25 times In .kugust 1963, an information was settled without fraud penalties. on gambling charges, as his name became a filed charging Landis with willful failure to On July 23, 1963. "Doc" Stacher, a one- On October 19, 1962, an agent of the familiar one in the New Jersey newspapers. file income tax returns for the years 1956 time partnor of New Jersey racketeeq Toledo Intelligence Division office noticed However, Moriarty grabbed his biggest to 1961. He pleaded guilty to three counts Abner Zwillman, was indicted on two that a recretaq was engaged in typing headlines when he was serving a two-to- the same day the information was Bed counts of evading $43,000 in taxes for reports which were not in her particular three-year sentence on a gambling convic- and was later sentenced to 30 days in jail. the years 1959 and 1960. area of responsibility and she was placed tion in the State Prison at Trenton. Landis' defense claimed a five-year The government sought to show that under surveillance from October 22 On July 3, 1962, two workmen came lapse of memory due to preoccupation with Stachcr held a secret interest in the Sands thmugh November 1. across $2.4 million of Moriarty's money public affairs. Hotel in Las Vegas. On Navember 2, she was questioned by in an abandoned garage. Three days later Mter a year of legal debate, Stacher three agcnts and accused of giving idor- another garage yielded $168,675, all Raymond C. Deering pleaded guilty and filed an affidavit mation from the files of the Intelligence belonging to Moriarty Executive Vice President promising to leave the US. for Israel and Division to Ted Maison, a figue in the At &st, Moriarty denied ownership. of Manufacturers never return. Stacher, born in Russia, had numbers business who was married to her However, he later changed his mind, filing Hanover Trust Co. been denaturalized in 1956, because he first cousin. Finally, the secretary admitted a tar return, claiming earnings of $5,500 New York, New York had concealed his long police record furnishing the idonnation to Maison and as a newspaper distributor and listing when he applied for citizenship in 1930. Raymond Deering was the chief adminis- took agents to her home, where they found On July 31,1964, Stacher was fined $2.4 million as "other income." He trator of a bank with 133 branches and, copies of four sensitive case reports relat- also requested a $212,000 tax rebate. $10,000 and given a five-year suspended until his resignation in 1961, a treasurer ing to an IRS investigation of Gosser for In October 1963, Moriarty was can- sentence; provided he keep his pmmise to of the New York State Democratic Party. the yean 1956 thmugh 1958. victed of failing to pay wagering taxes on go to Israel. On March 20, 1963, Deering resigned The secretav made one more "drop" of gambling receipts from his numbers opera- his banking post and pleaded guilty in information - this time with IRS agents tion. He was sentenced to one year in James "Totto" Marshetti Federal Court to evading payment of watching evev move. After Maison picked prison. which was to begin after the State Gambler $37,000 in income tares. up the documents, they were taken to prison term ended. He was also fined Bridgeport. Connecticut Deering had been charged with eight Gosser's office. There, on November 12, $12.500. counts of willfill income tax evasion by In the Summer of 1964, a special agent of 1962, Gosser, Maisan and a third member filing fraudulent tax returns for 1957, the Internal Revenue Service was detailed of the conspiracy were arrested and later 1958, and 1959, in an attempt to hide to work in Bridgeport, Connecticut, as an charged with conspiring to defraud the almost $60,000 in income. undercover agent. posing as a penon wish- United States.

FOR OFFICIAL USE 01111 IOR OFFICIAL USE ONLY ing to make numbcrs and horse bets; and conviction was overturned in a landmark tions with Grosso. The notebook had been On October 5. 1964, Welch's trial latpr as a would-be bookmaker. decision. seized in April 1960, when IFiS agents began. Judge Corn was called as a witness, In early September. the undercover agent The Court found that prospective regis- raided the witness' home. but invoked the Fifth Amendment and asked Arthur Gjanci; a member of the wants under the federal gambling laws The jury found Gmsso gdty on 20 counts refused to answer any qxestions. Hugh Bridgeport gambling combine, if he could "can reasonably expect that registration aE the 21-count indictment and he was sub- Carroll, former president of Selected set up an arrangement to turn in bets and and payment of the occupational tax will sequently sentenced to nine years in prison. Investments Corporation, was also called rcceive a commission. After Gjanci spoke significantly enhance the likelihood of their While Gmsso was appealing his convic- as a witness, and in testimony delivered to his "bosses," James 'Totto" Marchetti prosecution for future acts, and that it will tion, he testified at the tax evasion trial out of the presence of the jury, said he had and Frank Costello (not Frank Costello of readily provide cvidenre which will facili- of the assistant superintendent of the paid Judge Corn the $150,000 bribe. This Yew York), it was decided that th? under- tate their convictions." The Court further Pittsburgh police, Lawrence Maloney. testimony was later ruled inadmissible. cover agent would "book on 50%" with held that "those who properly assert the Groaso later told a senate committee On November 13, 1964. Welch was sen- "Tony" with settlement to be madr with Fifth Amendment constitutional privilege" that he paid bribes to Maloney. Wlvn tenced to three years imprisonment and Marcbetti. On October 2, the agent placed as to the regiseation and Occrrpational Tax asked if he paid bribes to persons other ordered to pay a $13,500 fine. bets with Costello, paying him with two payment provisions of the federal gambling than Maloney, Grosso declined to answer On Decembcr 9, 1964. at the Medical marked $20 bills. laws "may not be criminally punished for on Fifth Amendment grounds. Center for Federal Prisoners, Corn said On October 6, 1964, indictments were failure to comply with the& requirements." On January 29,1968, the Supreme that in 1956 he retained 099,500 out of returned against Marchetti, Costello and This case, and the case of Anthony Court reversed Grosso's conviction, on the the $150,000 paid to him by Cmll and a number of others, but the indictments C,msso, temporarily put an end to grounds that the federal gambling statutes that he received $4,000 hmO.A. Cargill, remained impounded until Octnber 8. Intelligence's involvement in wagering. violated the Fifth Amendment's guarantee Oklahoma City attorney, to reverse one 1961. On that day, 75 IRS special agents against self-incrimination. case and another $7.500 to reverse a case and 50 State policemen raided 40 gam- Anthony Grosso involving Cargill's son-in-law. In connec- bling establishments and arrested 45 peo- Gambler Oklahoma Supreme tion with the Carroll bnbc, Cam said he ple, including Marchetti and Costello. Pittsburgh, Pennsylvania Court Bench Scandal paid $7,500 to Justice N.B. Johnson and Chief Assistant U.S. Attorney Owens Judge Earl Welch Justice Welch. He also said he paid At his 1964 trial on charges of failing latcr said the raids had "broken the back Judge Nelson S. Corn $2;500 each to Judges Johnson and Welch to pay federal occupational gambling of gambling" in Bridgeport. to overturn another case. and wagering taxes and of conspiring to On April 9, 1964, an Oklahoma City fed- Costella, Marchetti, and Gjanci were By 1967, Welch had resigned his judge- defraud the gavernmcnt, Anthony Grossa eral grand jury indicted 72-year old state tried together and convicted of federal ship hours before impeachment, served claimed that he quit the numbers racket in Supreme Court Judge Earl Welch and 80- gambling violations. Costello and time in prison and was released in about 1950. Therefore he was not liable for the year old supernumerani Judge Nelson S. Marehetti received concurrent one-year five months; Johnson was impeached by gambling stamp and excise taxes. Grosso Cam on charges of income tax evasion. prison terms and $10,000 fines on a con- the state senate; Cargill was convicted of later claimed that, during his earlier num- On July 1. Judge Corn entered a nolo spiracy indictment and an individual perjury and was appealing his case; and bers career, hc grossed $13 million a year. contendere plea to his indictment and was charge. On another count, their sentence Corn was dead. Another former lottery operator testihed at sentenced to a fine and concurrent impris- was suspended and probation for two years Gmsds trial for the government. He said onment terms of eighteen months. At was imposed. Gjanci's sentences differed Pete Castellana Grosso was the boss of a numben combine Cords sentencing. the prosecution told the in that the fine was $2,000. New York, New York between 1958 and 1961, and that he oper- judge that Corn had received a.bribe of After their gambling convictions were ated under an ageement with Grosso to "lay W150,OW in return for a favorable judicial Peter Castellana, alleged to he a alfirmed by the U.S. Court of Appeals, off his daily wagen in return for a commis- decision in a state Supreme Court case. "" in the Carlo Gadino family Costello and Marchetti took their cases to sion and a share of the profits. His testimony Corn had indicated to a witness that the of the Cosa Nostra, wss indicted with five the Supreme Court. Costella died before was supported by a notebook containing a money was to help him and others of the others for violation of the National Rank- his case w-9 decided. However Marchetti's ddy record of his business and his transac- Supreme Court meet campaign Fxpenscs. ruptcy Act, in connection with the bank- -mnu pal3!AUO3 jo naqdau aql '.I[ sfialpuv Suue(l JO smoq ayr oi lo qn13 ueurslrod~ aql ox araql moq pue asnot1 c'dorp,, atpal aaqw uaql am* slaq pue dauo~ ,.'sral?m,, sraqmnu ql!~alaq papm pam~d pus raho3~apunluaM slua2v .+nluas mawoh[ rr! uo!luado supnue jo amol -[!ams ueBaq a91 '9961 isdnv u]

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The Cornmission descnbcd I know where your kids go to school and Gambler in 1963." the three men, whose employment as man- where your mother lives." brVegas, Nevada On the same day, the Fremont Hotel agers of the Monte Carlo Casino in Riley was in a financial mess because dropped its damage suit against the FBI. Freeport became a political issue in thr Amabile, (the Cosa Nostra's In 1965 and 1966, through news stones Bahamian elections, as "not suitable per- operating boss in Chicago), and David and a court action involving a part owner Guido Fidanxi sons to have bcen employed." Evans (Riley's construction superinten- of the . Ruby Kolod, the illegal Chicago Extortionist The three gamblers, Max Courtney dent), were working together to extort practice of "skimming" in Las Vegas casi- (whose real name was 'Morris Schmeder), money from him in connection with the nos came to light. Soon alter the Internal Revenue Service Frank Ritter. and Charles Brudne~had building of an apartment complex in the Skimming involves raking off portions launched an investigation of Guido been indicted four times between 1964 suburb of Lansing. In addition, Amabile, of gadding receipts in casino counting Fidanri, an extortionist and swindler, he and 1967 by federal grand juries in New Mayor Hemy Pien of Northlake. Illinois, rooms in order to evade the federal and told an IRS agent, "The man who you can York for activities as alleged heads of a Aldermen Leo Shabab!, and Joseph Drozd. state taxes on the prolits. get to tcstify that he gave me money hasn't U.S. sports bookmaking operation. They and Nick Palermo, a plumbing contractor, In May 1967. after a federal grand jury been born yet." were accused of failing to buy a federal were extorting funds from him in connec- investigation, seven licensed casino opera- On Marc.h 27. 1968, Fidanzi was found gambling stamp, failing to pay income tion with a Nolthlake apartment complex. tors were indicted on skimming charges. guilty by a jury in Chicago of income tax taxes on bookmaking earnings between The IRS agent investigating Riley One charge covered four former owners of evasion for 1961 and failure to file income 1958 and 1964, and of traveling interstate convinced him to talk to some special gov- the Iiemont Hotel and Casino, including Ed tax returns for 1963 through 1965. The in connection with racketeering. anment prosecutors. As a result, a federal Lcvinion, president of the Fremont and a iury deliberated approximately 20 minutes In Januav 1967, Courtney, Ritter, and grand jury returned two indictments in figure in the senate investigation of Bobby to find Fidanzi guilty on all counts. Brudner resigned their casino posts and Fcbruary 1967. against the figures Baker The second chargc covered three During the trial, 15 witnesses testified were later ordered to leave the Bahamas. involved in the extortion plots. owners of the Riviera Hotel and Casino. regarding payments made to Fidanzi After returning to the TJnited States, Amabile was convicted and sentenced to The backbone of the cases was a mr- between 1961 and 1965, totaling $52,800, Courtney and Ritter. who were described two terms. totaling 30 years. Battaglia got veillance of gambling tables throughout all of which was unreported income. The before the Miami Crime Commission as 15 years; Palernlo, 15 yearn; Neri, 12 a specific eight-hour shift by Internal purpose of these payments, according to "the two biggest pay-off operators and the years; Shababy, 10 years: Drozd, 7 years; Revenue Service agents. The surveillance the witnesses, ranged from investing in two biggest, heaviest bookmaken, and and Evans, 5 years. enabled the agents to gain a figure of what houses of prostitution, which Fidanzi said sports bookmakers in the country," pleaded Commenting on the convictions of the cash boxes attachcd to each table he was buying to obtaining a $250,000 guilty to conspiracy and failure to file tax Amabile, Battaglia and Evans, the U.S. should hold. loan from the extortionist. One witness return charges on November 6. 1968. Attorney said the case "was made possible Upon arraignment, Levinson and the sir testified that Fidanzi once told him, "If you because of the persistent work of Intcrnal others pleaded innacent. Levinson had deal in cash, you don't have to pay taxes." Joseph (Joe Shine) Amabile Revenue agents in getting three men to tell previously filed a $4.5 million civil lawsuit At the close of the trial, the government Rackezewi the buth about their experiences and busi- against the FBI and Central Telephone moved to deny appeal bond to Fidanzi. On Ch~cago,Illlnous ness relationships with the defendants. Company, claiming that they had unlaw- April 18, during a two-hour hearing, 11 Just getting these men to talk was a formi- fully eavesdropped on him. witnesses testified that Fidanzi threatened When builder William 6. Riley be cam^ dable achievement: that alone took ,more In March 1968, Levinson and Joseph to kill or maim them if they testified the subject of an inrcstigation by the than a year's work." Rosenberg, an official of the Riviera Hotel, against him. Calling Fidanzi a man of vio- Internal Revenue Service, Cosa Noslra were fmed $5.000 and $3,000, respec- lence and a menace to the community, the figure Joseph Amabile threatened him with tively, after changing their pleas to nolo judge ordered his band revoked. these words: "Don't say nothing or you cantenderc on charges of "willfully aiding Fidanzi was sentenced to five years in nwer will he walking the streets again ... and assisting in the preparation of a false prison.

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Anthony Dichiarinte before that he was Mayor of the city. IRS Deputy Collector to three years in prison and fined $2,500. Chicago Racketeer On May 20, 1968, Miriani was eon- Pleads Guilty The farmer had previously appeared before victed of income tar evasion for the years Anthony Dichiarinte, who was described in the court and been placed on probation far 1959 through 1961. This period, during In 1967, Castro H. Voss, a former deputy Chicago newspapers as a "crime syndicate a similar tax violation in 1951. which Mllinni was Mayor saw his net calleclor of IRS and a public accountant juice loan operator," went on trial in worth rise in excess of $600,000. Of this in Madesto, California, pleaded guilty to October 1968, for evading taxes for the Writer Charged sum, he failed to report $260,000 in fling false individual income tax retluns. years 1957 and1958. income taxes. VOSSclaimed dependents he did mt sup- In 1964, Boyd W. Lawloq a writer, pro- Dichiarinte, who had $ever filed an The government successfully contended port, understated gross receipts from a ducer, announcer and radio executive, was income tax return in his life, had previously before the jury that the source of the unre pmtnership and his tax service, and charged with failure to file. Lawlor once been convicted of passessing hijacked ported income was substantial campaign claimed automobile depreciation based on wrote for and produced a number of well- liquor, armed robbery and robbery. contributions hmindividuals, organiza- inflated value. Voss was sentenced to three known radio series, including the Lone Based on the net u-orth method, the gov- tions, and testimonial dinnew which Miriani years imprisonment. Ranger and the Green Hornet. ernment said that Dichiarinte's income far diverted to his personal use bv investing 1957 through 1958 was $55,906, them in stocks, municipal and Government Buddy Rich Fined on which he should have paid $20,059 honds, and joint bank accounts, thus mak- in taxes. Jazz bandleader-drummer Buddy Rich was The Seventies ing them taxable income. Internal Revenue Service agents fmed $2,500 and plac~don probation for More than 70 witnesses testified that testified during his trial that Dichiarinte 5 years for failure to file federal income In 1970, the staff of special agents pew to they individually. or ou behalf of some told them his occupation was "thief" and tax returns. Rich was arrested on July 1, 1,857. organization, made specific contributions that he had held a steady job only once - 1967, at the Yewport Jazz Festival at The Bank Secrecy Act was enacted in to Miriani for political expenses. Their for a short time 30 years ago. Providence, Rhode Island. His income 1970 as a result of concern expressed by names were not included by Miriani on thc The agents also testified that when he for the year involved exceeded $100,000. law erlforcement officials over the launder- sworn-to list of contributors he filed with was questioned about his wealth in the two ing of illegally generated funds through the State of Michigan. years, his reply was that he hadn't earned Artist Guilty domestic hanks and foreign tax havens. Miriani was sentenced to one year and a cent during that period but was able to Since then, the Act has proven an effective a day in prison wd fined $40,000. Aaron Bohmd, a nationally known mist spend from a hoard acquired in previous tool for identifying and investigating tax at the University of Wisconsin, was found years "by illegal activities." Dichiarinte evaders and for cutting the flow of money guilty of income tax evasion and lined also lived in a $60,000 home. Tax Consultant Convicted generated by illegal activities, especially $10,000 plus court casts. Rohrod main- -4s Judge Bernard M. Decker sentenced narcotics trafficking. This is discussed In 1966, Charles A. DeLoach, a nationally tained no records of painting sales as he felt Dichiarinte to nine years in prison and further in the Investigative Projects know tax consultant was convicted of to do so was incompatible with his artistic scction below. ordered him to pay a $10,000 fine, he tax evasion and sentenced to three years in life. However, he kept detailed records of During a six-month period in late 1970 called the case "the most flagrant I could prison. DeLoach misrepresented himself his investments and dividends, and main- imagine." and early 1971, a number of special agents to IRS officials throughout the country as tained saving accounts in 18 saving and were detailed with ather Federal agents as a CPA, an attorney, and an enrolled practi- loan amxiations thmughout the country. "sky Louis Miriani tioner One hundred witnesses were used marshals" on international and domestic flights. This was an effort to eom- Mayor in the six-day trial. Wheat Farmer Guilty Detroit, Michigan bat the surge in "skyjacking" of commer- In 1966, a 60-year old Kansas wheat cial aircraft. The detail was ordered by Louis C. Miriani was a well-known politi- farmer pleaded guilty to one of five counts Resident Richard M. Nixon. It was cal figure in Detroit for 25 years. As of of knowingly understating his gross prompted by the skyjacking of three L1.S. 1968, he was City Councilman-elect and income. The Kansas farmer was sentenced commercial aircraft by Palestinian tenorists

FOR OFFICIAL USE ONLV who diverted the planes to the Amman During the mid-1970's, Intelligence com- Cases of the Seventies Ten-Year Jail Sentence for dwelt and blew them up. Sky marshal mitted substantial resourcrs to investigating Major Narcotics Trafficker duties were subsequently assumed by fraudulent financial practices in large corpo- Lester Ramsey, Jr, a major narcotics Customs Security Officers. rations. Investigations disclosed intricate Former Chairman of trafficker in the Detroit area, was found In 3avember 1973, the position of corporate schemes designed to generate Commissioners of the guilty and sentenced to ten years imptia- Chief, Intelligence Staff, was added to large amounts of cash for illegal or improper Massachusetts Department oammt for evading his income taxes for the IRS Smice Center organization. use and to evade taxes. These "slush funds" of Public Utilities Jailed the years 1968 and 1969. In 1974, the Service hegan a reevalua- were used for such illegal pqmes as car- and Fined tion of its participation in investigations pate contributions, bribev, lobby- Attorney Norman Mason, Taunton, Mass- Tax "Expert" Receives of organized crime figures and narcotics ing and diversions to personal use. At one achusetts, former Chairman of Commis- Three-Year Jail Term for traifickers to ensure that its criminal point, more than 100 corporations involved sioncrs of the Massachusetts Department Preparing False Returns enfarcement efforts were directed at the in making questionable payments were of Public Utilities, was sentenced in most significant violators of the tax laws. under active investigation. Kcnneth Chester Griffin, self proclaimed 1970 to three months in prison and fined The general enforcement propun emerged On July 2, 1978, the Intelligence to be "the greatest tax man in American $10.000. Mason was sentenced after as having top priority. Xwertheless, the Division was renamed Criminal Investi- history," was found guilty on thirty-one pleading guilty on two counts of willful Intelligence Division continued to uigor- gation Division. This was based on the counts of willfully aiding and assisting in failure to file returns. ously enforce the tax Laws against special recommendations of a Senire-wide organi- the preparation and presentation of false enforcement subjects. albeit at a somewhat zational review study group. The goup and fraudulent income tax returns and was Vietnam War Protestor Receives reduced resource level. was concerned about the public heing mis- sentenced to three years in prison. Griffin's Year in Prison for Supplying a In 1975, the Intelligence Division led by the title, "Intelligence," and sought schemes for understating his clients' False Form W-4 came under pblic and Congressional a more proper and understandable title. income over a three-year period amounted scrutiny for activities related to "Operation Although the group had initially recorn- James M. Shea, Jr, a war protestor and to $1,500,000. Leprechaun." That was an lntellig~nce mended the title "Criminal Enforcement." former philosophy professor at the George effm to gather information about evasion "Criminal Investigation" was eventually Mason College of the IJniversity of "" of Carlo Gambino schemes involving tar havens off the coast adopted. Virgtnia, was found guilty and sentenced Family Sentenced of Florida. There were allegations that The 1970's also saw the introduction to one year in prison for willfully supply- to Five Years for Tax Evasion Intelligence was gathering nontax-related of a number of other impartant enforce- ing a false and fraudulent Employee's Aniello Dellacroce, reputed "underhoss" ment efforts. There were two major pro- information about the sex and dzinking W-ithholding Exemption Certificate (Form of the Carlo Gambino family was sen- jects initiated against narcotics traffickers. habits of individuals. The resulting inves- W-4) to his employer in violation of IRC tenced to fi~eyears and fined $10,000 for Jurisdiction over wageling tax enforcement tigations and hearings caused a rcevalua- 7205. On February 20. 1970, Shea filed an evading his income taxes for 1968. An was returned to the Intelligence Division. tion of. and substantial changes to, amended Form W-4 declaring a total of 20 article in the "New York Post," referred to And significant enforcement actions were Intelligence Division operations, particu- exemptions. This represented an incrcast: the conviction of Dellacroce as "one of started against unscrupulous tax return larly the use of various sensitive investiga- of 14 exemptions sincc September 6, the most significant couaroom victories preparers, multiple tax refund schemes, tive techniques. These included 1969, the date of the last Form W-4 filed against the Mafia in many years." information gathering and confidential illegal tax protesters, and promoters of by Shea with his employer. When tbc expenditures. abusive tax shelters. These prqiects are Richmond District special agent asked Ex-FHA Deputy Director covered in the Investigativr Projects sec- Shea for the names of the 14 additional Gets One Year for tion below. dependents, Shea stated that he could not Income Tax Evasion mme them because they consisted of sev- eral million Vietnamese. John B. Boyle. former Deputy Director of the Federal Housing Administratmn (FHA) for the Philadelphia Region, was found

FOR OFFICIAL USE ONLY

, guilty of income tax evasion and was given "The Big Bluff" Author Bmnwas indictcd and brought to trial. Ferraro's conviction was based upon gov- a one-year jail sentence. Boyle failed to Gets Three-Year Jail Term The jnry was hung 11 to 1 in favor of con- ernment evidence that he had accepted report cash payoffs he received from real for Failure to File nction for several days. They ultimately racket payoffs totaling $340,000 from 1966 estate brokers for inside information on returned a verdict of guilty 8s to all defen- to 1971. During this period Ferraro was Marvin Cooky, a leader of the illegal tax FAA activities. Boyle also received unre- dants except Banon, who was acquitted. Chief of the Rureau's Racket Squad. protest movement in Arizona, was found A In ported fees for guarantees that brokers' subsequent investigation of the foreman of this capacity he was in charge of all vice guilty on three counts of failure to file and bids ~vouldbe accepted. the jury, Ralph Buckalew, disclosed that enforcement in the Pittsburgh area. was sentenced to serve three years in , " Barrun's acquittal was a result of a $25,000 prison. Cooley's book "The Big Bluff" Major Organized Crime Figure bribe he paid to Buckalew. says that tax collection methods vialate Jerome Daly gets One Year Receives Six-Year Prison Term and individual rights and that the IRS should for Probation Violation $20,000 Fine for Tax Evasion Pro Football Star Guilty he cut off from receiving funds. Jcrome Daly, a major fipe in the illegal of Failure to File . Sr, identified by the Senate tax protest movement, was sentenced to Permanent Subcommittee on Investigations ADP Generates Its First Richard E Gordon, Jr, better known as one year in prison for willful violation of as a "caporegime" and "consiglieri" in the Succasaful Section 7203 Dick Gordon. of the Chicago Bears profes- his probation. Daly was found guilty of Luchese Family, was sentenced to a prison Prosecution In Chicago sional football team, was sentenced to 15 failing to file his Federal Income Tax term of six years and a fine of 520,000. days in prison, $5,000 fine and five years Return and was placed on three years pro- Ralph W Coultrip entered a plea of pilg Vario was convicted on all three counts probation for willful failure to file his bation in 1974. A condition of his proba- to willful failure to file his federal income of a three-count indictment charging him Federal income tax return for 1967. tion was that he had to secure permission tax return for 1965 and was sentenced to with conspiring with Stephen DePasquale from his probation officer before leaving serve five months in prison. The investiga- and Henry Younger to defraud the United Former Alabama Official the state of Minneeota. Daly ignored this tion of Coultrip was on the basis of infor- States by concealing the income derived Sentenced to Four Years condition of his probation and u-weled mation received from the Data Processing from a lucrative policy operation in viola- in Prison for Tax Evasion throughout the country appearing as a Center in Kansas City, Missouri, and was tion of 18 USC 371 and failure to include pest speaker at t;vr protest rallies. the fist successful prosecution generated Wmen Seymore Trammell, former Director his illegal gambling income on his income Seventeen district Intelligence Division by ADP in the Chicago District. of Finance of the State of Alabama, was tax returns for the years 1965 and 1966 in offices throughout the country documented convicted and sentenced to four years in violation of IRC 7206(1). Daly's activities and submitted the infor- Former West Virginia Governor prison for attempting to evade his income mation through the probation office to the Sentenced to Twelve Years in tax liabilities for the years 1967 and 1968. Illinois Legislator Sent to Prison chief judge of the Federal District Court in Prison and Fined $50,000 for 15 Months After 7206l11 St. Paul. Based on this information, a war- Former Racket Squad Chief Conviction William Wallace Barron, 26th Governor of rant was issued for Daly's arrest. Daly was Sentancad to Six Years and the State of West Virginia, was sentenced arrested leaving the Pittsburgh IRS William D. Cox of Charleston, Illinois, Fined $30,000 for Filing to twelve years in prison and fined $50,000 Building and returned to St. Paul for his was sentenced to 15 months imprisonment False Returns after entering a plea of guilty to three probation hearing. after hc pled guilty to the charge of sub- counts of bribing a federal juror. This case Samuel G. Ferraro, a former Allegheny scribing to a false income tax return fur originated from an Intelligence Division County (Pittsburgh) Detective Lieutenant A Rainy Night In New York 1971. Cox, a four-term legislator, was also investigation of Barron and others for con- was convicted on six counts of filing false for Brook Banton the Majority Whip of the lllinois House of spiring to transport bribe money intemtate income tax returns (IRC 72ffi(1))and Representatives. He had served On May 24, 1974, popular singer Brook (18 USC 1952) while Barron was Gaverno~ one count of conspiracy to obsmct state as the Sherind Treasurer of Cales County Benton was sentenced to two years proba- gambling laws (18 IRC 1511). Ferraro was and had played professional baseball for 10 tion, a $500 fine and ordered to pay his immediately sentenced to prison terms years with the Chicago White Sox, St. Louis back taxes as a result of his guilty plea totaling six years and fined 530,000. Cdnals and St. Louis Bmwns. to willful failure to file a tax return for

FOR OFFICIAL USE ONLY the year 1968. Bmok Benton was born Former Internal Revenue Agent Agnew received a sentence of three Hawaiian Crime Syndicate Chief Benjamin Peay, in Camden, South and Racketeer Sentenced for years unsupervised probation and a Sentenced to 24 Years in Prison Carolina, and resided in St. Albans, New Evasion-Defendants Failed to $10,000 fine. for Evasion York, at the time of his plea, He began his Report Receipts from Bootleg On May 20, 1975, Wilfard K. "Nappy" career during the late 1950's and was con- Tape Operation Entire Village Government Pulana, Hawaii's crime syndicate boss, sidered one of the country's top singers Convicted of litle 18 and 26 Martin Stern, an en-revenue agent in the was sentenced to serve 25 years in prison and recording artists during the 1960's. Violations Los Angeles Dishlct during 1956.1964, for federal income tax violations. The sen- He earned at least4 dozen "gold records." and Jack Fine, an organized crime associ- On November 21, 1974, the Mayor of the tence was the longcst known for an offense As a result of his last "gold record," "A ate of Mickey Cohen, were indicted in Chicago suburb of Chicago Ridge, Joseph of this type; more than doubling the 11- Rainy Night in Georgia," Benton was nom- December 1971, for attempted evasion J. Coglianese; thc entire Board of Tmstees: year sentence meted out to Chicago under- inated for a "Grammy" as top male singer of income taxes, failure to file income tax Edward I! Cheske, John J. Jones, Edward world boss A1 Capone and exceeding the returns, and conspiracy to evade income J. McDonough, Frank I. Szymakowski; and 15-year sentence of Lx Angeles mobster U.S. Appeals Court Judge taxes for the year 1970. The unreported two former trustees, William F: Jezewski Mickey Cohen. Convicted of Conspiracy income consisted of receipts from a boot- and Robert H. Scanlan, were indicted on and Tax Evasion leg tape operation. Jack Fine pled guilty charges of filing false returns by not Section 7215 Violation On February 19, 1973, after a seven-week to the evasion count and was subsequently reporting corruption income, extortion, Results in Eightaen-Month juq trial, Judge Otto Kerner, Jr, was found sentenced to a year in prison. Martin Stem conspiracy to extort, and obstruction of a Jail Sentence guilty on all counts as charged in a 17- opted for a bench trial, was convicted on criminal tax investigation. On December On June 19,1975, Rodney H. Kight, count indictment. Kemer was sentenced to all three counts and was sentenced to four 13, 1974, six trustees pled guilty to at Morgantown, West Virginia, was sentenced three years in prison and fined $50,000. years. Additionally, Stem was fined $2,500 least one tax charge, and all but one of to 18 months in prison and a $10,000 fine, Upon his indictment in December 1971, on each count. Total civil taxes and penal- those six pled guilty to at least one extor- on a trust fund vidatioio Kight was the Judge Kerner went on a leave of absence. ties assessed to Jack Fine were $36,920: tion charge. On January 9, 1975, the president of Beverages, Inc., a soft drink He had been a sitting federal judge on the and $1,361,385 in additional taxes and mayor and a former trustee pled guilty bottling distributorship far portions for 7th Circuit Court of Appeals and formerly penalties were assessed to Mmin Stern. to tax and extortion charges, and within West Virginia, Ohio, Pennsylvania and (1960 to 1968) governor of the state of approximately three months from the time Maryland. Kight pled guilty to three of the Illinois. Prior to being elected governor Vice President Agnew Resigns of indictment, on Febmq 25, 1975, the sixteen counts of failing to deposit approx- of Illinois, Kerner held the positions of last trustee pled pilq in the form of a On Octaher 10, 1973, Spiro T. Agnew imately $15.000 in taxes that he withheld County Judge of Cook County, Illinois, and nolo contendere plea to one count of filing resigned as Vice President of the United from his employees. United States Attorney for the Northern a false tax return by not reporting his States and pleaded no contest to one count District of IUinois. In addition, Kerner was share of extortion proceeds. The mayor of evading $13,551 of Federal income taxes New York City Police a Major General in the Illinois National and a former trustee received prison terms on $29,500 of urnported income in 1967. Lieutenant Sentenced to Guard and doring 1967-1968 headed the of one year and a day, in addition to a Agnew, who previously was the Baltimore Serve Five Years and Fined President's Commission on Civil Disorders $55,000 fine imposed on the mayor. One County Fxeeuti~cand the Governor of $35,000 for Tax Evasion which authored a report commonly other trustee received a prison sentence Maryland, permitted the government to referred to as the "Kerner Report." of 90 days and a $5,000 fine, and the On March 5, 1976, Pasvale Inriieri, a far- pblish evidence that he had extorted remaining trustees received lines ranging mer New York City Police Lieutenant and bribes far almost a decade. Agnew pur- from $2,500 to $5,000. Detective Squad Commander, was sen- portedly received about $87,500 in unre- tenced to serve huc years in federal prison prted income between 1966 and 1973, all on tax and fdsr statement charges in addi- in cash kickbacks from engineering and tion to paying a $30,000 fine. Intrieri was consulting firms. investigated as part of an ongoing investi-

FOR OFFICIAL USE ONLI gstion into the theft of poonds of Largest Tax Casa in 398 to evade his Federal income taxes far the Father of Rock "n" Roll narcotics from the New Ynrk City Police New Jersey History years 1974 and 1975. This action, brought Sentenced for Tax Evasion Roperty Clerk's Office. Among the stolen The sentencing of Lester Genser and about by a joint investigative effort by IRS drugs was the so-called "French Charles E. Berry, dkla Chuck Berry, who Lawrence Forman and their corporation, and the Drug Enforcement Administration, Connection'' heroin. some claim to he the father of Rock "n" Genser Forman, Inc., hy the Honorable under the DEA-IRS joint agreement, cul- Roll, pled guilty to one count of willful Judge Herhert I. Stern on hovember 11, minated an extensive four-year investiga- evasion of federal Pax Cur thr: year 1973 Nationally Prominent 1976, culminated in the successful inves- tion of McKinley and his organization by and was sentenced to the custody of the Tax Protester Sentenced tigation of one of the largest criminal and virtually every local, state, and federal law Attorney General for 36 months; 32 to Three Years in Prison civil income tax investigations in the his- enforcement agency. months were suspended. Berry was put an On November 26, 1975, W. Vaughn tory of the nation and the largest income probation far 48 months under the special Ellsworth, purveyor of the "Fifth Amend- tax case until then in the state of New Banker Gets Three-Year Sentence condition that he perform 1,000 hours of ment Income Tax Return Packet" through Jersey The total taxes and penalties for Title 31 Violation community semire, including benefit eon- his tax protest firm called Constitutional amounted to approximately 8516,000,000. George Thompson Ill, former chairman of certs and charitable activities. Tax Consultants, was sentenced to four Judge Stern sentenced each of the taxpay- the board of the Ridglea State Bank and concurrent terms totaling three years in ers tn 57 years (49 years to run cancur- a former city councilman in Fort Worth, Famed Con Artist gets prison (3 years on IRC 72060); 1 year nn rently) and to fines of $130,000 each. Texas, was sentenced to three years in Ten-Year Santenca for each of three section 7203's) and a 52,000 prison and hed $20,000. Thompson was Tax Violations fine in U.S. District Court. Phoenix, kzona. Idaho Potato King Pleas convicted of violating the currency rrans- Nolo to False Personal and On June 13. 1979, the trial of Billie Sol action reporting requirements in further- Corporate Returns Estes started in Federal District Court in Regional Director of SBA ance of the violation of other federal laws. Dallas and lasted one month. After five and His Deputy Convicted for John R. Simplot, known as Idaho's Potato Thompson was found guilty of making cur- days of deliberation by the jury, a guilty Filing False Returns. Bribery King, and hs two corporations, the J.R. rency loans to a convicted narcotics dealer verdict was returned against Estes on the end Conspiracy Simplot Company and Simpiot Indushies, for the purpose of purchasing cocaine and charge of conspirscy to conceal assets On November 9, 1976, Russell Hamilton, Inc.. pled nolo contendere to an eight-count marijuana. In return for the loans, from the Internal Revenue Scrvice. Estes Jr., fmmer Regional Dixctor of the Small information for filing false individual and Thompson's mistress was supplied uith was sentenced to ten years and his parole Business Administration's Region Ill, was corporate returns and aiding and assisting narcotics. revoked. Estes previously served seven sentenced to one year and a day in jail and in the preparation of false corporate rehlrns. years in prison on mail fraud charges and four years probation. Also Joseph Clark, Simplot waived indictment by the federal Portland. Oregon, Businessman1 was released an parnle. Hamilton's Deputy Regional Director, was pndjury and pled to the information. He Fence Gets 25-Year Sentence Billie Sol Estes was not an imposing sentenced to pay $10,000 in fines and five and the corporation were hned the maxi- in Murder Plot Against Special figure in stature or education. Yet he made years probation. The charges for which mum of $5.000 for each count. Agent an impression on the American public and Hamilton and Clak were sentenced On February 20, 1979, Adolph Spears was is legendary as the greatest swindler of the included tiling a false tax return, brihery Tennessee Narcotics "Kingpin" sentenced to 25 year8 for the conspiracy to decade, if not of all time. Estes was the and conspiracy. Becomes Inmate Due to murder a special agent by burning dawn mastermind behind the infamous. noneis- Joint Investigative Effort by his residence. The judge called it a "hor- tent anhydrous ammonia fertilizer tank IRS and DEA rendous" crime, and said that althouch- swindle that mcked the nation in 1962. On August 19, 1977, Ronald L. McKinley it was a difficult case, he would have was sentenced to ten years imprisonment reached the same guilty verdict as did and a 910,000 fine following his plea of the jury after much consideration. guilty to two counts of hillfully attempting The Eishties major interagency drug investigation pro- or undress was optional. The admission cost Former Philadelphia ject Organized Crime Dmg Enforcement was $50 per couple. Police Commander Guilty The investigatiun showed that the own- of Corruption The force of special agents increased to Task Farce (OCDETF) was initiated; and the Tax Haven Offshore Bank Project was ers of Plato's Reheat maintained a double 2,782 in 1980. On Augr~st1, 1983. John Debenedetto, for- because of thc increased use set of hooks and skimmed $2.3 million In February 1980, the Cash Flow Project mcr Commander of the Central Division of of tan haven countries by US. taxpayers. during a three-year period from 1977 was initiated in the Jacksonville District. the Philadelphia Police Department, was These are discussed in the Investigative through 1980. During that same period, Its objective war to investigate money sentenced to eight yem imprisonment, Projects section below. Plato's Retreat had grossed $3.6 million. launderers and compt bank officials who five years probation and a $2,000 fine on The three owners and their accountant violated currency laws by using financial false return and Hobbs Act violations. The were subsecpently charged with conspir- institutions to launder large sums of cur- charges stemmed from Debenedetto's sys- acy to defraud the government (Klein rency generated primady from narcotics Cases of the Eighties tematic extortion of money from businesses type), corporate income tax evasion, per- trafficking. Cash Flow was part of susceptible to police harassment. sonal income tar evasion and the prepara- Operation Greenback, a coordinated The case was the result of a grand juq tion of false payroll tax returns. All of the Treasury effort. Former Cabinet Member Receives investigation in Philadelphia conducted defendants were found guilty. The owners On May 27, 1980, the Criminal One Month Prison Sentence by the US. Attorney's Office, Criminal were fined a total of $150,000 plus the Investigation Division issued objective Investigation and the FBI. Debenedetto Earl L. Butz, former US. Department of cost of prosecution and sentenced to 8 prosecution criteria, generally geared to was the Police Inspector who commanded Agriculture Secretary under Presidents years in prison. The accountant was sen- the type of violation and the method nf the Central Police Division which cam- Nixan and Ford, was convicted of tax tenced to 4 years in prison and fined proof. The criteria substantially increased prised the entire center city area of evasion, sentenced to 5 years and fined S10,000 plus the cost of prosecution. the dollar amounts of the prior unpub- Philadelphia. $10,000. After serving one month in lished rules-af-thumb. Drbenedetta and officers under his com- Butz was placed on probation for Attorneys Claim "Honest Errors" On March 21, 1982, as part of a reorga- mand shook down businesses susceptible the remaining 59 months of his sentence. in Tax Evasion Case nization of the IRS National Office, the to harassment, including after-hours clubs, Butz substantially understated fees he Criminal Investigation Division was ele- Two attorneys in Stamford, Connecticut, homosexual bars, distributors of gamhling- received from speaking engagements vated to assistant commissioner level, pleaded guilty to charge 6 of income tax tpe vending machines, bingo games, as throughout the country. and the office of Assistant Commissioner evasion and were sentenced to 90 days in well as modeling studios which fronted for (Criminal Investigation) was established. prison and fined $10,000 each. The attor- prostitution. Debenedetto made the initial Club Operators Receive Long In 1987, development was begun on the neys had devised a scheme which under- contacts for all thc payoffs and personally Sentence for Skimming Automation of Criminal Investigation (ACI) stated their partnenhip income hy negotiated the amount of most of the Pmjcct, which will provide a nationwide, Based on information received from two $100,000 per year. In preparing the part- bribes. On most occasions, the "victims" integrated computer system to enhance that the owners of Plato's Retreat nership return, they deliberately computed paid Debenedetto personally, although Among its many planned fea- were skimming substantial amounts of the income deposits incorrectly by omit- on occasion, he would use three trusted tures arr financial analysis tools for comput- money from cluh receipts and djverting the ting the final digit on the adding machinc officers to serve as "bag men." The three ing taxable income and tax; an investigative funds for their personal benefit, Criminal or by subtracting rather than adding the were convicted of Hobb~Act violations report generator; a support system to pre- Investigation initiated an investigation. deposits. They attempted to blame the along with Debenedetto. pare documents such as summonses. Plato's Rrtreat was a swingers club located adding machine for making "honest requests for returns, and letters; and a in Brooklyn, New York, where people went emrs." However, while computing case and time reporting system. to share various sexual experiences. The expenses, the adding machine appeared to Also in the 1980's, a pmject was under- club was equipped with a swimming pool, err in the opposite direction. Digits were taken to detect tax evaders through "busi- discotheque, sauna mom, movie the ate^ and added to expenses, zeros were tacked on, ness opportunities" newspaper ads; a private rmms for 4 individuals or less. Dress and expenses were deducted twice.

FOR OFFICIAL USE ONLY none of the money that went to this so- Mail Order Minister imprisonment and fined $10,000. The tions were also identified as a result of this called church did anything hut maintain Convicted of Tax Evasion investigation showed that Judge Clairbame investigation. his habits of high living. He then sen- Robert J. Fahre, dkla David Meredith, of accepted $50,000 from a Las Vegas tenced Fabre to 22 months in prison and Toledo, Ohio? began his mail order busi- brothel owner to obtain an appeals court Currency Skimming and the maximum fine of $15,000. ness in 1975 and, by 1980, had amassed a reversal of the hrothel owner's conviction Laundering Conspiracy Leads successful mini-empire. He used comput- on income tax charges. These funds and to Three-Year Prison Term Mountain States Drug Task ers, had a toll freetelephone for ordering $107,000 in legal fees from his former law for Indianapolis Millionaire Force Raid Nets $2,000,000 and even accepted major credit cards. practice were not reported on his federal in Currency. Silver and Gold An Indianapolis entrepreneur, with the Fabre began his association with the income tax returns. Krugerrands help of business associates, skimmed and Universal Life Church (IILC), Madesto, laundered millions of dollars in currency California, in June 1978. He received his On January 9,1984, federal, state and Miami Bank Launders Millions from the daily gross receipts of numerous local agents of the Mountain States Drug in Illegal Drug Money ordination, Doctor of Divinity Degree, and Dairy Queen and Kentucky Fried was granted the title of Bishop. Fabre Task Force executcd fedrral search Based on information received from a Chicken stores in which he had a con- warrants in Aspen, Colorado; Miami, immediately opened a checking and FDIC hank examiner that Currency trolling financial interest. Store managers Florida; and Las Vegas, Nevada. savings account in the name of ULC. Transaction Report (CTR) Forms were not were told by the entrepreneur or one of IRS, FBI, and Customs agents dis- Subsequently, he also opened church DEA, being filled out properly and cash transac- his associates how much currency to rupted a major illegal organized narcotics accounts in Illinois and Waiashingtnn, D.C. tions were being handled in an unusual skim each day and records were kept to network dealing in multi-kilos of cocaine The investigation revealed that dishurse- manner, the Criminal Investigation ensure that store managers were not throughout the United States. ments from these accounts were nothing Division began an investigation of the cheating the entrepreneur. The skimmed Task Force agents seized approximately mare than personal living expenses. Great American Bank (GAB) of Dade currency was laundered hy purchasing $2 million in currency, silver, and gold Withdrawals from the church savings County, Florida. bank cashier's checks in amo~rntsunder Krugerrands, in addition to two luxury account included $9,500 to purchase An informant at the bank subsequently $5,000 and depositing funds as loans inventory for a newly farmed partnership, resort residences and eight vehicles, one told investigators that Large amounts of from shareholders. $30,000 for a down payment an a luxury being a Porsche 930 Turbo Carrera. The cash were being brought into the bank on assets were seized under 21 881. residence and $25,000 in cash which was USC an almost daily basis in cardboard bones Gasoline Bootleggel illegally transported to Canada, placed in The raids were generated from evidence and suitcases by Latin males. A surveil- Pleads Guilty a safe deposit box, and subsequently obtained by the cooperative efforts of fed- lance was established and comborated the In Uovember 1982, a joint fedcralflocal brought hack into the United States. eral, state and local task force agents informant's information. A search warrant through the use of 24-hour visual and task force was formed for the purpose of Fabre was indicted on Postal, Customs was obtained and executed on the bank by elecmnic surveillance aver a period of investigating organized crime's infiltration and IRS chqes and subsequently pleaded IKS and U.S. Customs special agents on and takeover of the wholesale gasoline guilty to 10 counts of a 61-count indict- several months. The agents lived, ate and February 27,1981. industry on , New York. It ment. At sentencing, the Judge noted that roomed together around the clock to gather The search uncovered evidence which evidence necessary to obtain search war- found that many unbranded gasoline the income tax evasion involved becoming showed that during a 14-month period, wholesalers had devised and used a "daisy a mail order minister and claiming to take rants at various premises. $94,000,000 in cash was either deposited chain" scheme to subvert the tax collection a vow of poverty to avoid paying taxes. The or exchanged for cashier's checks through procedure or simply ignored the payment Judge said "this not only violates the laws Las Vegas Federal District the GAB and that the hank'failed to file of federal excise taxes completely in hopes of man, it also violates the laws of God" ... Judge Sentenced CTR's and tiled false CTR's. "thou shalt not take the name of the Lord of evading detection and prosecution. On October 3, 1984, Federal District Court Three bank officials, including a vice in vain." The Judge pointed out that The "daisy chain" used a series of paper Judge Harry Clairborne of Vegas, president and head teller, all pled guilty to E. La transactions between vatious corporations Fabre's church never performed the slight- Title 31 violations and the bank was fined Nevada, was sentenced to two years in which gasoline was transferred among est religious service of any kind. Further, 8375,000. Three major narcotics organiza-

FOR OFFICIAL USE ONLY FOR OiFlClll USE ONLY ueous distributors for the purpose of agents discovered what Nipon was doing, operated Allied Tank Cleaning, Inc., and Major TaxlNarcotics thwarting government efforts to trace the they %geed to falsify their audit in exchange Commercial Cleaning Corporation. Allied Case in Florida Enk Cleaning and Commercial Cleaning origin nf the gasoline sold and calculate for $215,000 in bribes. The investigation of Robert W. Govern, et the precise volume of gasoline on which Nipon pleaded guilty and was sentenced were in the business of cleaning fuel tanks al. originated in 1977 from a high-level on hoard USNavy ships. the taaes were due. The gasoline bootleg- to three years imp~lsonmsntfor evading drug leaders project case development file gers then pocketed the 27 cents of federal, more than $800,000 in tax on his 1978 Although Corn was successful in obtain- and subsequently became a joint DEA-IRS state and local taxes due on each gallon of personal and corporate tax returns and ing several wnk cleaning contracts from Title 21/26 grand jury investigation in gasoline sold. the Navy while making substantial profits, for paying $215,000 to two IRS revenue June 1981. The drug aspects of the inves- One gasoline wholesaler who used this he paid little or no tar by inflating the cost agents far favorable treatment on his 1978 tigation hccan~eevident in February 1981, scheme was Charles Forthmuller, the prin- and 1979 individual and corporate tax of goods sold on his corporate tax returns. when Lake County, Florida, fuefighters, cipal officer and sole stockholder of Amtec returns. The investigation was worked Corn created false invoices claiming that battling a forest fire, entered a barn endan- Petroleum Corporation. An investigation of jointly by the Criminal Investigation one of his frms had subcontracted tank gered by the fire and found 23,000 pounds Forthmuller and Amtec Petroleum dis- Division and Inspection. cleaning work to another of his firms, of m4uana. The property, alhohaugh closed that Forthmuller failed to account while at the same timc, not creating addi- vacant, was owned by Robert Govern. The for and pay over approximately $762,000 "Rockefellers of Marijuana" tional income for the Fum supposedly investigation eventually showed that in excise taxes due on the purchase and Receive 17-Year Sentence doing the work on the false invoices. As a Robert Govern was the head of one of the sale of approximately 19,000,000 gallons reeult, Allied Tank Cleaning, Inc., failed to In 1985, brothers Christopher and Robert largest marijuana organizations in the of gasoline for the period July 31, 1980, rcpart over $500,000 in income during Reckrneyer of McLean, Virginia. pleaded countq and responsible for the distribu- through January 31, 1983. Forthmuller 1982, all of which was diverted for the guilty to operating a $100 million continu- tion of over two million pounds of mari- subsequently pled guilty and was sen- personal use of Corn. ing criminal enterprise involving the juana over a four-year period. tenced to 18 months imprisonment and The investigation also showed that Corn importation, sale and distribution of mar- On April 13, 1982, Govern and 12 other fined $10,000 together with the cost of was stealing and selling fuel and oil from juana. Robert Reckmeyer also pleaded defendants were indicted for RICO viola- prosecution. U.S. Navy ships. Kim to cleaning the guilty to subscribing to a false corporate tions, drug violations. and conspiracy to tanks, Corn was supposed to remove the income tax rehim, illegal possession of an defraud the IRS. However, prior to the International Fashion Designer remaining fuel from the ship's tanks and Uzi machine gun, and failing to report the indictment, Govern was arrested as a pli- Receives Prison Sentence store it until the tanks on board the ship international transpofiatiion of US. NT- vate aircraft he had boarded at Orlando, had been cleaned. The fuel and oil was The investigation of Albert Nipon, an inter- rency. Christopher Reckmeyer pleaded Florida, was taxiing to the runaway. to be returned to the US. Navy. Howeveq nationally acclaimed fashion desiguer, dis- guilty to subscribing to a false corporate Idomant information had indicated that Corn failed to return all of the fuel and closed that Nipon charged to his corporation income tax return, and aiding and assisting Govern would flee the country to avoid sold some of it to civilian oil companies more than 51,000,000 of exppendihlrps used in the preparation and filing of a false indi- prosecution. in exchange for cash in reconstructing and furnishing his per- vidual income tax return. Both were sen- After the arrests. on the evening of April Overall, Corn evaded approximately sonal residence. and other personal items tenced to 17 years imprisonment without 13, 1982, a high-powered rifle shot ww $1.3 million in tax from these schemes. such a? antiques. kitchen appliances, a the possibility of parole. Assets in excess fired at the residence of one of the two IRS On September 23, 1985, Corn plead guilty Russian crown sable coat, pool table. land- of $6,000,000 were recovered from the case agents. Several days later, the DEA to conspiracy to evade taxes and tax eva- scaping and restoring a grand piano. These Reckmeyer organization. case agent's wife received a threatening sion on his 1982 personal income tax were reflected on thc cowrate books and phone call indicating "she would be next." return and the 1982 tax return for one of records as factory expense. selling expense, And a key witncss identified during the San Diego Waterfront Fraud his companies. He was sentenced to 18 trimmings, material, machinery and equip- bond hearing was fired upon twice in his Curtis Cam was a prominent San Diego months imprisonment. five years probation ment, piece goods, office equipmenl and driveway. These incidents led the U.S. land owner, millionaire, and a successful and hed $600,000. other business categories. The investigation magistrate to inform the defendants in waterfront businessman who owned and also disclosed that when two IRS revenue court that any witncss or agent "unable"

FDA OFFICIAL USE ONLY FOR OFFICIAL USE ONLY 141 to testify at the trial would have his grand Tax Evasion and Ex-Treasury Chief Sentenced Tennessee $1 billion. Prosecutors reeov- jury testimony entered into evidence. lllegal Arms Export to One Month ered $1.8 million from Butcher in assets ~ ~ On November 10, 1982, after a 5-week owed to creditors. From 1976 to early 1980, Anatoli Maluta On June 25,1987, Robrn B. Anderson, a trial, Govern and nine other defendants were and Sabina Dorn Tittel directed the former Secretary of the Treasury, once found guilty or pled guilty to RlCO viola- operations of six California corporations described by farmer President Dwight D. tions, drug, and Klein-type conspiracy viola- collectively known as the CTC companies. Eisenhower as "the finest candidate WE The Nineties tions. One defendant xa: found not guilty These companies were owned by Werner could have" for President, was sentenced and two defendankwere fugitives. After Bmchhausen. a West German national and to one month in prison, five years proba- The number of held special agents the jury had returned their verdict and all international dealer in highly sophisticated tion for his mle in several illegal business increased to 2882 in 1990. defendants were ordered incarcerated, infor- electronic equipment. Under the direction schemes. Tim related studies were completed: CI mation was received fmm a DEA informant of Maluta and Tittel, the CTC companies Anderson. who served in President at the Cross-roads and the Crossroads that Govern had solicited the informant to purchased in cxccss of $10 million in Eisenhower's Cabinet, pleaded guilty to Follow-up Study. Recommendations pm- kill the AUSA, the IRS special agents, the electronic components and equipment illegally operating an offshore hank and vided for uniform procedures nationwide DEA special agents, and several witnesses from American manufacturers and shipped evading taxes on about $127,500 of in the administration of Authorized for a fee of $25,000 each. them to European corporations controlled income in 1984, mast of it consulting fees Uncontrollable Overtime (AUO), the use of On December 28,1982, Govcrn was sen- by Bmchhausen. Bmchhausen then from the Reverend Sun Myung Moon's firearms, the use of enforcement vehicles, tenced to 45 years in prison and in excess arranged for the sale and transfer of the Unification Church. the physical fitness program, and also pm- of $5 million of real propedy was forfeited goods to Soviet-bloc countries, primarily vided for the centralization of Cl's finan- to the United States for RlCO violations. East Germany and the Soviet Union. Most Noted Tennessee Banker cial accounts. of the equipment was classified as being Sentenced Directives, added to IRM 9141.2, are Prominent Prosecutor Convicted controlled for national security purposes summarized below: C.H. Butcher. Jr, a noted Tennessee bank- for Embezzlement and required United States export license8 1. .4U series 1811 personnel in CI hill be ing entrepreneur, was sentenced to a maxi- panted by the Departments of State and cxpected to work a minimum average of Robert E Leanard was the pmsecuting Commerce. mum 20 years in prison for his scheme of attorney for Genessee County, Flint, 25% AUO. By means of the net worth and expendi- defrauding thousands of crediton. Butcher Michigan, from 1963 until November 23, 2. All CI field special agents and their tures method of proof, special agents of the was also fined $341,000. 1979, when he was convicted of filing a immediate supervison ulU have gov- Criminal Investigation Division were able to Butcher previously pled guilty to 1.6 false income tax return and embezzlement. ernment vehicles available to them 24 determine that Maluta and Tittel had failed Federal charges: two counts of money Leonard failed to report on his income houn a day. to repon incomr in excess of $370,000 and laundering, two counts of conspiring to tax return funds he had embezzled from 3. All series 1811 field personnel in CI $470,000 respectively. Most of the funds commit income tax fraud, two counts of county and federal revenue sharing monies must have their assigned firem avail- were used to purchase luxury automobiles, helping to prepam a false tar return, and he controlled as county prosecutor. These able 24 hours a day. jewelv, residences, and certificates of five counts each of bank and bankruptcy fimds were intended for the payment of 4. All series 1811 employees must partici- deposit. In one year alone, Maluta purchased fraud. informants and the purchase of controlled pate in a CI physical fitness program. $190,000 in South &can Kmgerrands io Butcher orchestrated a scheme to hide substances by undercover investigators. currency h.ansactions. millions of dollars of a3sets from bank- In addition, CI began the process of On February 25,1980, Leonard was On December 7, 1981, Maluta and Tittel ruptcy creditors. He and his brother Jake centralizing financial accounts under the sentenced to serve 5 yeam in prison and were bath sentenced to terms of imprison- were forced into bankruptcy after the col- Assistant Commissioner (CIJ tx financial fined 515,000. He was also subsequently ment for income tax evasion, false state- lapse of their Tennessee-Kentucky hanks plan manager. disbarred by the State Bar of Michigan ments, and violation of the Arms Expoa that at their height had assets of $3 bil- These directives went a long way to pro- fmm the practice of law far life. Control Act. Maluta was sentenced to five lion. Prosecutors estimated that Butcher's mote consistency nationwide and reduce years and fined 950,000 and Tittel was illegal business activities had cost East local differences of opinion. sentenced to two years and fined $25,000.

FOR OFFICIAL USE ONLY In October 1993, the Assistant of a local organized crime associate, made by Peters titled, "In Search Of This investigation was the largest crimi- Commissioneq (CI) implemented a reorga- Stephen Saccoccia. He had been making Excellence." nal tax case in the histoly of Connecticut. nization of CI at the district, regional and suspicious currency deposits into his On August 9, 1991, special agents of the Nationwide publicity was generated that national levels. business accounts. Internal Revenue Service's Criminal included national television nctwork cuv- Criminal hestigation district operations Through the diligent efforts of IRS Investigation Division executed search war- erage, national newspaper coverage, and were consolidated and reduced in number Special Agents, the Saccoccia organization rants at Stew Leonard's Dairy as well as articles in Time, N~tusweekand New YOrk to 34. The seven CI regional offices were wai exposed as one of the largest narcotics the home of its Executive Vice President. magazines. eliminated. In their place, four SES money laundering organizations ever to Copies of a computer program, a large vol- Directors of Investigations (DI) were estah- operate in the United States. The investi- ume of records, and $584,000 in cash, Hotel Executive Goes to Prison lished reporting to the Assist'mt gation covered sin states and agents from mostly in $100 hills were seized. This eui- On Decemher 12, 1989, Leona M. Commissioner (CI). National Training, the four different federal law enforcement dence helped prove that a 10-year long Helmsley, Joseph E. Licari, and Frank National Fmnsic Lahortory, the National agencies, as well as numerous state and conspiracy had been in effect that pemit- Turco were each sentenced m separate Transcription Center, and Criminal Case local law enforcement personnel. ted I~onardand other employees to skim counts, including conspiracy, tnx viola- Processing Systems were each placed Over $400 million was traced from some $17 million in receipts. tions. and mail fraud. Helmsley was an under one DI. street sales of cocaine in New York City On a weekly basis, a specially slitten international hotel executive. Licari is a The National Office was also reorga- to various Saccoccia storefronts. The funds computer program was mn to permanently CPA and was chief financial officer for the nized. The Division of National Operations were then traced through various busi- alter the books and recards. Utilizing the Helmsley empire. Turco was Helmsky's was created, with three offices: Narcotics1 nesses and hank accounts. Ultimately, the Universal Product Code this program not chief assistant. Each was sentenced to Money Laundering, Tax Crimes, and Special funds were traced to their final destina- only reduced total sales figures. hut prison, probation, and a fine. Investigative Techniques. The Review tions in Colomhia, to the accounts of high reduced sales an an item-hy-item basis. Lona hZ. Helmsley, assisted hy Licari Division and the Finance Division wm level memhers of the Cali cartel. The original data was destroyed forever and Turco, directed a largr-scale,long- enlarged and made separate. Later. In November 1991, wi~hthe cooperation and the reduced sales data was recorded term scheme to evade taaes by disguising a Division of Policy and Information of othcr federal and local law enforcement on the journals from which the tax returns Helmsley's personal expenditures as husi- was formed. agencies, forty-five arrests were made were prepared. The program itself was hid- nejs expenses of various companies in the Criminal Investigation supported the simultaneously throughout the United den in a hollowed-out book kept in the red estate and hotel empire she and her Servicewide Nunfiler Strategy. Bankruptcy States. At the same time, Saccaccia and office of the Executive Vice President of bushand conuolled. That conspiracy fraud and Motor Fuel Excise Tax fraud his wife, Donna, were arrested in Geneva, Stew Leonard's. resulted in substantial evasion of personal received additional emphasis. These are Switzerland. On July 22, 1993, Stew Leonard. Sr, income taxes and the submission of discussed in the Investigative Projects sec- and the other conspirators in the case numerous fdse and fraudulent corporate tian below. A Dairy Gone Sour pleaded guilty to violation of Title 18, and partnership returns. United States Code Section 371. Leonard Stew Leonard's Daiw located in Norwalk, Millions of dollars in personal expenses agieed to pay approximately $15 million i~ Connecticut, is known internationally for of thr Helmsleys were dis~butedfor pay- additional taxes, penalties and interest Cases of the Nineties its customer-oriented service philosophy ment to the various companies they con- ($10 million prior to sentencing and the md the large volume of merchandise it trolled, and were camied on the hook8 and remainder within three years.) sells. It is now the ''V'mld's Largest Dairy records of those companies as either operat- On October 20, 1993, Stewart Leonard Organized Crime Case Store" as featured in "Ripley's Believe It ing expenses or capital expenditures. This was sentenced to 52 monthsin prison and Or Not." Leonard was mentioned 22 times widespread practice of having their husi- Tn 1989, hased on information reflected fined $850,000. Frank Guthman, Vice by business gun, Tom Peters in his hook ness entities pay their personal bills gave on Currency Transaction Reports, the President, was sentenced to 41 months in "A Passion for Excellence" and the dairy the Helmsleys two illegal tax advantages. Crimirral Investigation Division of the IRS prison, and Stephen Guthman, the Chief described as the model for an ideally oper- First, by having the company pay the ven- initiated an investigation into the activities Financial Officer, was sentenced to 18 ated and managed small business in a film dor directly, the Helmsleys gat the benefit months in prison. of the various goads and services without bought an island off West Africa, owned a Boss Gotti, together with , was reporting the value of the payments as Long Island mansion decorated in pink convicted of all counts including the Klein failed to file federal income income on their personal tax returns. marble and had a knack for making his conspiracy. Second, the payments for the Helmsleys' enemies disappear. Marat Balagula was a tax returns since 1984. He maintained a source of income through "no show" jobs, pcnonal expenses were reflected on the member and alleged leader of an organiza- Everything That placing himself on payrolls af close friends books and records of the companies as tion of criminals made up of Russian and Glitters Isn't Gold business expense deductions. other Eastern European immigrants based in order to create some air of legitimate Leona Helmsley,'who has 69 years old, in Brooklyn, New York. earnings. Over the years 1984 through On August 21, 1992, Luis Roges was was sentenced to 4 years in prison; 3 years During the mid-1980's Balagula cnn- 1989 Gotti received $210,000 with just found guilty on 80 counts of money law- pmbation; 750 hours community service; tmlled 100% of the bwtleg gasoline which enough taxes withheld to make any income deling, conspiracy, and filing false Forms case fines totalling $7,152; payment of all tares, was distributed in New Yak City. Controll- tax de minimis. 8300. interest, and penalties to the IRS ($1.2 ing terminals from Bmoklp to Westchester Conversations on court authorized wire- Roges, the president of Dear Enterprises, million) and New York State ($470,000); County in New York, his ring sold gasoline taps characterized Gotti as the president or Inc., a wholesaler of hegold, was first tar- and the costs of the investigation and among various companies including bogus chairman of the board of the Gambino geted in January 1990, by the Financial pmsecution. finns that reported having paid the excise crime family, whose sole purpose was the Analysis and Swategic 'kgeting Team After the sentencing, Judge John M. taxes and then vanished before the Internal acquisition of wealth through its illegal (FAST). FAST was created to coordinate Walker, JL addremed a courtmom packed Revenue Service could follow the compli- activities. Gotti had structured his entire the efforts of the IRS and U.S. Customs. with reporters: "In closing; let me say ... cated and cumbersome paper trails. life in a manner designed to conceal hoth An analysis of CTR's filed by Dear showed that when a citizen deliberately cheats the In June 1993, he and seven individuals his true occupation and the nature of his that during the years 1987 through 1990, government on taxes awed, that person were indicted in the largest excise tax income. In his own words, Gotti acknawl- nppmaimately 1,800 Forms 8300 were undermines the system of voluntq tax evasion scheme in United States histoq. edged payments and "pieces" of compa- filed reporting transactions in excess of compliance upon which our country's Balagula along with Joseph Macchia; nies that came to him hy virtue of his $90,000,000. This accounted for approxi- hnancial security depends.. .that person Maechia's three sons, Joseph, Jr, Larry, position as hoss of the Gambino family. mately 32 percent of all the Foms 8300 also cheats the many millions of honest and George; Victor Batuner; Michael In 1990 an eleven-count indictment filed in the New York metropolitan area. taxpayers who pay their fair share in taxes Varzar; and John Barberio were charged in charged Gotti with racketeering, murder, Customers whose names appeared on ...deliberate tax evaders cannot be permit- a conspiracy to evade approximately $85 gambling, and loansharking, along with a the Forms 8300 stated they never made ted to escape unpunished. It is my hope million dollars in federal excise tares. Klein conspiracy. The Klein conspiracy the purchases reflected on the Forms 8300. that the sentence today will send a clear In the fall of 1994 Balagula and his eo- charged Gotti and others including Frank Roges created the invoices in question message to those who are thinking of defendants plead guilty and are cumently Locascio, the "underhoss" with conspiring by forging the signatures of customers or cheating on their taxes. That if you do it awaiting sentence. ta impede, impair, obstruct, and defeat the inflating the dollar amounts on invoices and you are caught, you will face impris- This was not the htcase to be brought lawful functions of the Treasury- where a sale did actually take place. onment. And finally, I trust that the sen- against Balagula for excise tax evasion. In Department in the assignment and collec- Twenty-five customers identified 661 false tences today will make it ahundantly clear July 1992 Balagula, along with three other tion of income taxes for the years 1984 Forms 8300 totalling approximately that no person. no matter how wealthy or individuals, was convicted an one count through 1989. This was the first time Catti $37,000,000. pmminent stands ahove the law." of conspiracy to evade approximately was linked with specific acts of racketeer- ing, including murder. $500,000 in federal excise taxes and one President of National The tax portion of the trial made front- Russian Godfather count of excise tax evasion. For this comic- Sheriff's Association page headlines along with national net- tion, Balagula received a 10-year sentence. Marshall E. Honakeis prominence as the At the height of his power, Marat Balagula work news coverage, and likened Gatti to President of the 20,000-member National was a kingpin in a Brighton Beach another infamous criminal, A1 Capane. On Sheriff's Association (NSA) and his politi- Russian mob who traveled with a April 2, 1992, after a three-month trial, Paraguayan passport, traded in diamonds. cal connections, particularly at the state

FOR OfFICIAL USE ONLY FOR OFFICIAL USE ONlV level, caused this investigation to draw 1985 Outstanding Housing Authority Kickbacks Authority Tomasso also admitted failing to rlational media attention. He was sched- State Trial Judge report over $9,000 in illegal payments on An extensive federal inmatigation of mis- uled to be presented a Lifetime Achieve- his 198.3 income tax return. Judge Arthur D. Dalessandro was a judge conduct in New Jersey led to snccesshl ment Award by the U.S. Marshal's Service Fmm October 1984, through December for over 17 years. and the winner of the prosecutions of the executive directors of Association. Virginia Governor Douglas 1988, Bressaw paid about $100,000 in 1985 Outstanding Trial Judge Award. He foul. housing authorities for accepting Wilder, Lt. Governor Donald Beyer and kickbacks in small denomination hills was a 50 percent owner of the Gene Lispi kickbacks. Attorney General Mary Sue Teny's top siuffed in sealed envelopes to Anthony J. Chevmlet Inc., automobile dealership in John J. Sudia, executive director of the deputy was present'for his inauguration Slotwinski, executive director of the PC& Pittston. Pennsylvania. The dealership had Carteret Housing Authority. received as president of the NSA. Amboy Housing Authority, iin rehlm for issued corporate checks to pay personal $55,000 in illegal payments from Alfred Forty special agents fmm IRS-CID and about $1.2 million in contracts with the expenses of Judge Dalessandm, and Judge D. Bressaw, an electrical contractor who the FBI executed search and seizure war- Authority Slotwinski also admitted failing to Dalessaedro had personally directed did over $541,000 worth of work at the rants at Honaker's residence and st the report 845,652 in illegal payments on his employees to make these payments. Authority Sudia failed to report 631,M)O sheriff's office in Bristol, Virginia. In addi- 1985 income tax return. In 1988 and 1989, Dalessandro's personal income tax returns in 1984 income. Sudia had awarded an tion to a voluminous amount of financial plumbing contractor Michael E Estavanik, reported no income from Lispi Chevrolet. unusual number of emergency, nnohid records, thc agents seized Honaker's spa- Jr., paid W20,OM) in kickbacks to Slotwinski. Twenty IRS special agents executed a contracts to Bressaw's firm, Alfred cious hillside home, certificates of deposit. As each successful investigation led to search warrant and 60 boxes d business Bressaw, Inc. a bank account, three vehicles, a coin col- another, federal investigators learned that records were seized covering a four-year Bressaw cashed roughly $500,000 worth lection. gold jewelry, and roughly $64,000 from 1985 to 1988 Estavanik had paid period. At hid, the govemmcnt presented of Authority checks in two years instead of in currency in $100 bills found in the $22,000 in kickbacks to Ronald J. Jeffery, the testimony of 27 witnesses and entered depositing them directly into his business middle drawer of the sheriff's desk. executive director of the North Bergen over 2,200 exhibits into evidence, including bmk accounts. A compliant bank officer In six years, Sheriff Marshall Honaker Housing Authority. At Jeffery's trial, 14 charts, 64 photopphic enlargements, cashed the checks and gave Bressaw the had diverted in excess af 8500,000 in fees Estavanik testified that Jeffery had and copies of 23 computer schedules which currency without filing the federal directed to the city of Bristol by the US demanded 10 percent of the profits he were handed out to the jurors. Currency Transaction Reports required for Marshal's Service, ar well m vaious other earned on Authority plumbing work. Delessandro pleaded guilty to two amounts in excefis of $10,000. He also surounding municipalities, for warehous- Jeffcry also extorted $5,000 hm counts of altempted tax evasion. He was wrote checks Irom the account to himself ing prisoners. Appmximately $375,000 of William Waite, a window replacement con- sentenced to two am-year prison terns or to ''cadi' and recorded them on com- the diverted funds had been specifically tractor, and $500 from Leonard Herman, a lo be saved concurrently and was ordered pan? books as repayments of personal identified as being used by Honaker to playground renovator. All three testified at to pay a $20,000 fine and coats of pmsecu- loans. When confronted, Bressaw admitted acquire substantial personal asscts. Jeffery's trial that Authority payments for tion which amounted to more than using some of the diverted money to pay A meeting was scheduled between completed work were withheld until Jeffery $19,000. kickbacks for contracts with the Carteret, Honaker, his attorney, investigating agents received illegal kickbacks. Jeffery %,as Judge Dalessandro's guilty plea Woodbridge and Perth Amboy housing from IRS-CID, and the assistant united found guilty of kickback and tax charges. and sentencing received incomparable authorities. He agreed to wear a concealed states attorney far 11 a.m. on January 22, In yet another housing authority kick- media coverage throughout northeastern microphone in order to obtain evidence 1992, to discuss a plea agreement. back scandal, on March 12, 1992, Roger Pennsylvania. Local newspapers reported against the executive directors of the On that date he entered the shedf's Martin, owner of Quality Roofmg, Inc., these events with front-page headlines authorities. office for the first time since the execution pled guilty in federal court to making a reading: "Dalessandro Throws in the Fram January 1985, through December ofthe wmants, placed a sawed-off, 12 $25,000 cash payoff in 1988 to the mayor Robe" and 'ludge to Trade Pinstripes 1989, Bressaw paid $23,000 in kickbacks gauge, double-barreled shotgun, loaded of the city of Passaic in connection with a for Prison Stripes." to Gene A. Tamasso, Sr. Executive Director with 00 buckshot, to his chest and pulled 51.4 million 1987 contract to huild the of the Woodbridge Housing Authority, in the trigger. He was pronounced dead on Passaic Housing Authority maintenance rehlrn for $232,000 in contracts with the arrival at the Bristol, Tennessee, hospital. garage. The mayor was charged with extor- tion, bribery, conspiracy and tax evasion.

FOR OFFICIAL USE ONLI 148 FOR OFFICIAL USE ONLY 149 Foreign Militaq Financing Program, and it The sentences were staggered so that Slumlord Embezzles $950,000 prison, and while awaiting his reporting was the &st time a defense contractor was only hvo defendants would go lo prison at date to the US, Mmhal's Service, fled to Denise Ross was an Atlantic City. New charged with money laundering. a time. Those out of prison could continue Argentina. Ross was captured several Jersey, slumlord who, assisted by her General Electric was fined $69 million to successfully run their business to ensure months later while attempting to enter the father, Arthur Ross, and her CPA accoun- ($9.5 million criminal, $59.5 million civil). full payment of their tax liabilities and US. through Los Angeles International tant, Ronald Oringer, CPA, embezzled protect the jobs of 60 employees. Airport with false Argentinean papers. appmximately $750,000 from federally- Peter E. Rose The accountant who assisted Ross in the funded low-income houiing funds. These Failure To Pay Gets Three Years preparation of false personal and corporate On April 20, 1990, Peter E. Rose, Major monies were used to purchase additional income tax returns agreed to plead guilty to League Baseball's all-time hits leader and, real estate holdings, precious metals, Elbert L. Hatchett was a well-known attor- assisting the Rass family in their evasion. many believe, future hall of fame candi- coins, and stamps as well as to live a ney whose tax returns reported over a mil- date. pleaded guilty to income tax charges. significantly more impressive lifestyle than lion dollars a year fram his law practice. Mayor of Jersey City Rose was sentenced to five months in her income tax returns would allow. In He did not pay any of the tax due. prison and hvelve months probation. Total He agreed to several payment plans hut addition, these funds were used to pay Gerald McCann, the farmer mayor of fines were $50,100. did not live up to any of the agreements. hribes to building inspectors so that the Jersey City, was convicted of defrauding Collection activity was thwarted by his use building repairs to the low-income housing the Southern Florida Bank Savings and Folk Art Entrepreneurs of joint ownership of real property and would be left unchecked. Loan of Boca Raton, FL, by diverting placing personal assets in the name of his Documenting the origin of the unre- for personal gain at least $267.300 of a John and Virginia Long, J. Keith and wife and children. ported income to Denise Rass was merely $300,000 investment the bank enbusted Rhonda Blakely were involved in a coun- Hatchett purposely kept all of his a matter of public records checks and can- to him in 1986 and 1987. try folk art business, putting on shows income out of his law finds bank accounts. tacts with government agencies. It was the McCann, as a would-be-developer, each weekend all over the US. Their On one occasion, Hatchett earned a legal misuse of these funds that drew them into famed a partnership with the bank known shows were so popular that they rented fee of $985,000. Hatcheti purchased two the realm of taxable income. A summons as Historic Equishares Inc., to invest in professional football stadiums to display cashier's checks in his name. When he to Ross's accountant prompted a $50,000 the development of a private marina at their wares and accommodate the thou- wanted to pay expenses, he went to the extortion attempt to the accountant for his Liberty State Park in Jersey City sands of buyers. bank and negotiated one of the cashier's agreement to mislead the investigators. McCann was found guilty of 10 counts of Search warrants were issued for both the checks. He deposited an amount needed to Through the use of consensual monitoring, mail and wire fraud and one count of mnk- Long's and Blakely's homes and their cor- cover the checks written far those expenses admissions from the accountant were ing a falfie statement to Midatlantie Bank of porate office. $1.2 million in currency was and took the balance back in the form of a obtained and used to gain his cooperation. Jersey City to ohtain a personal loan; and, seized from the Longs' bedmm closet, plus new cashier's check. He admitted knowing that the Ross tax he also was cnnvicted of four federal income over $2 million in accounts fmm 12 hanks, On other occasions, he had fees paid to returns were false, that the depreciation tax evasion charges that stemmed from an and various real and personal pmperty. other members of his law firm who, in turn, schedules themselves showed an increase attempted cover-up of the diversion. The Longs and Blakelys pled guilty to paid him when he needed the money. in assets far above what Ross could afford, income tax evasion and structuring charges. The four-week trial showed a lavish and and that Rass admitted to him that this General Electric John Long and J. Keith Blakely each elegant lifestyle that included a home with increase was due to the misuse of govern- received 18 months in prison. Virginia On July 22, 1992, General Elechic an indwr pool and tennis court, Rolls Royce ment funds. Long and Rhonda Blakely each received Corporation (GE) pleaded guilty to four and Porsche automobiles. Both Denise Ross and her father, Arthur prison sentences of one year Ad one day. criminal charges including money launder- After three and one-half days of deliber- Ross, pled guilty to conspiring to evade The defendants also agreed to forfeit ing and defrauding the US. government in ations, Hatchett was convicted of four and defeat federal income tax laws. Denise $4,.2 million i~ assets (most of which was in the largest whistle-blower case in histoq: counts of failing to pay income tax for the Ross was sentenced to six months in bank accounts and a new home valued at It was the largest fraud involving the years 1982,1983,1984 and 1986. On prison and four years probation. Arthur $1.4 million) and they agreed to pay $5.8 June 1, 1989, Hatchett was sentenced to Rass was sentenced to three years in million in taxes, interest and penalties.

FOR OFFICIAL USE ONLY FDA OFFICIAL USE ONLY three consecutive one-year terns of incar- physically impaired, handicapped or elderly mrnt Pension to repay he City of Detroit for CCS monthly expenditwes of $35,000 ceration, five years special probation until he reaches the age of 84 or he becomes the amount of the embeszlemcnt. paid to members in jail and various publir (including the payment of all hack taxes physically incapacitated. Dandy was 64 at The 18-month grand jury investigation, officials. lnfelise also gave an IRS under- and current estimated taxcs) and fined the time of sentencing. conducted jointly by the IRS and FBI, was cover agent a $50,000 juice loan to bribe $100,000. made difficult hy the city of Dewoit's total a zoning official. On February 7. 1990,5 Doctor Fails To Report lack of cooperation. years to the day after the murder of Hal Millionaire Grocet Investment Income The 14-week trial included the intro- Smith, 20 memhem of the Inielise street . . Alex Dandy was a flamboyant millionaire On March 28, 1991. Dr. William J. Alt and duction of more than 1,100 exhibits by 94 crew were indicted on charges ranging who was one of Michigan's largest grocery his return preparer daughter, Karen, were pmsecution witnesses. The jqdelibcr- fmm RICO to murder and tax evasion. store magnates. He evaded millions of dol- convicted of conspiring to evade the per- ated seven days before convicting Hart on All but Infelise and four others accused lars in personal income taxes by siphoning sonal income tax liabilities of William Alt two counts of embezzling funds from the of the Smith murder pled guilty Jahoda was grocery store receipts through complicated for 1982, 1983 and 1984 and the corporate city of Detroit and two counts of income relocated through the Federal Vitness and disguised kickbacks from vendors income tax liabilities of William J. Alt, tan evasion. Protection Pmgram. Thc Infelise et al. trial dependent on the chain's business. He .M.D., PC. for heal years 1983 and 1984. lasted for over five months. 'hefinale of the also forced vendors to place relatives and During 1982 through 1984, William Alt Untouchables Saga Repeated trial was Jahoda's 4 weeks of direct exami- nation and 2 weeks under the most strenu- friends on their payrolls for work ncver inxsted over $1;200,000 in nearly 40 ail In 1983. IRS-CID began an investigation ous cmss examination seen in a Chicago performed. He demanded kickbacks of and gas and real estate limited partner- of Chicago's mast notorious organized courtmom. Four defendants were convicted $50.000 a month from one vendor, disguis- ships. He claimed all possible credits, crime street crew headed by Rocco on RICO and tax charges. Infelise and his ing the money thmugh an intricate use of deductions, and losses. None of the Infelise. The crew controlled the largest two top lieutenants were sentenced to life gift certificates. Some of the kickbacks income from these investments exmtion, juice loan and gambling opera- without parole_ the other to 18 years. were paid to a church to appear as church was ever reponed. tions of the Chicago Crime Syndicate Jahoda was the last defendant to he sen- contributions. Much of the unreported income was con- (CCS). Members were also prime suspects tenced. He had pled &ty to RICO, murder Dandy changed Certified Public verted to assets held in the names of nomi- in the gangland murders of several "inde- and tax charges. His sentencing guideline Accounting firms four times in five years, nee corporations. Vehcles and real property pendent" bookmakers including one of the was also life without parole. The Cmvem- each time taking steps to mislead the firms were acquired in the names of shell corpo- country's largest, Hal Smith. The oveneer ment, citing Jahoda's unpmcedentrd cooper- as to the true nature of certain corporate rations created by William and Karen Alt. of the gambling empire was William ation, asked for a suhstantial downward and personal transactions. On June 7,1991, both Karen All and Jahoda. During a seven-year period, depmure. The last to spek was Jahoda. Duling the 10-week trial, 75 witnesses William J. Alt were each sentenced to two Infelise, Jahoda and their suhoidinates He smed his remarks by turning from the testified and over 2,000 exhibits were consecutive five-year terns, fmed 5200,000, were the targets of numerous CID search podium to face the crowded courtmom. He placed into evidence. Dandy was found hree years probation and the costs of wanants and FBI wiretaps. told the judge that he did not consider him- guilty on all ten counts including income prosecution. In 1989, Jahoda met with the case agmt seK as othcm had, a hem. He said hc had tax evasion, filing false income tax returns, and offered to cooperate with the gouern- worked far only four months, the real heroe* obstruction of an IRS examination. mail Former Police Chief ment. Chicago's technical agents wired a were the agents who dedicated their lives to fraud and bankruptcy fraud. luxury high-rise apartment rented by CID Fonner Demit Police Chief Wdiarn L. Hart the fight. On May 22,1992, Dandy was sentenced to house Jahoda in his undercover role. was sentenced to ten years in prison for The judge sentenced Jahoda to %lmonths to 23 years in prison; hed $2 miUion and During the next 5 months. he made over emhemling 52.1 million fmm the plice and then gave him credit for time served dercd to pay $3.8 million in restitution. 200 recorded conversations on topics rang- dcpment's imprest cash account, known (which started when he hegan his coopera- He was immediately placed in custody. as the "Secret Service Fund." Wan was also ing from murder to tax fraud. These con- When he is paroled, he must perform eight tion with CID in 1989 and heing placed in odered to sell his suhstantial penanal versations confirmed Jahoda's previous hours of community service each week in the Federal Witness Protection Program). assets and use his Detroit Police Depart- statements to CID agents about the torture the form of manual labor to assist the poor, murder of Hal Smith, and detailed the

FOR OFFICIAL USE ONLY The Clinkenbeards and Stan Feist, owner A substantial amount of the absconded William Jahoda, though still a marked man existed. When confronted with the burnt of one of the largest cigarette wholesalers credit union funds were spent by King on by the CCS. was free. evidence, the judge quickly pled guilty in the Pacific Northwest, evaded both fed- unprofitable business ventures. Impre~sive mid-hid. He was sentenced to 11 years at eral and slate excise taxes estimated in the amounts were also spent on his lavish life Project Greylord a prison farm. millions of dollars. The tax-exempt ciga- style, which included extravagant paiies rettes (for sale on an Indian reservation) in Omaha, Dallas, Yew Orleans and Project Greylord was a joint FHUIRS pro- Martin Hogan ject independently conceived and under- were delivered from Feist's Sheehan Washington, D.C. At the Republican taken by each agency-in the early 1980'3 Marty Hogan was a young, clean-cut judge Majestic Wholesale Company in Missoula, convention in 19M, King spent $150,000 to ferret out judicial cormption in Cook asaigned to auto court. Hogan took cash Montana to the Clinkenbeards' Busted Ass for a party at Southfork, the mansion used in County, Illinois. The US Attorney's office bribes to fix cases. He was found guilty Ranch on the Flathead Indian Reservation. be 'Dallas' telexision series. In Wa~ashtngton, recqlestrd that the two agencies join forces. and was sentenced to 10 years. The cigarettes were then smuggled by truck D. C., he rent4 the former Brazilian Among the many investigations and tn- Hogan argued that the discrepancy to the Indian Smoke Shops in Washington Embassy far 5146,000. als (all which obtained much press cover- between the cash method of unreported State and sold without paying the federal King had stolen more than $15 million age) two cases are highlighted. income of 520,000 and bribe amounts and state excise taxes. from a credit union which could account testified to (totaling only $4,400) should A 2,835-count indictment was returned for only 52 million. John H. McCollom be enough to overcome the verdict. against 24 individuals for cigarette smug- He had reported income of approxi- Only during trial did the defense trot gling, conspiracy, RICO, and money laun- mately 815,000 a year, but anived at an John H. McCollom was the second highest out the dead man defense: Hogan was the dering. Also included in the indictment audit driving a large Mercedes-Bens and ranking judge in Cook County. A John Doe recipient in pre-pmsecution years of large were seizures involving in excess of $46 wearing dazzling rings and an expensive subpoena had been served on the judge, cash gifts fmm a now-deceased multi- million dollars. watch. Ultimately, a gand jury was formed requesting production of all his personal millionaire. The CPA firm of Price Lany and Dorothy Clinkenbeard agreed to resolve the allegations. bank accounts. McCollom fought the sub- Waterhouse had handled the deceased's to plead guilty to one count of RlCO each To sustain the embezzlement scheme, poena on punds of self-incrimination1 financial accounting for years. The dead and a total fmfeiture of $1,187,000. Stan King and his conspiraton concealed the privilege all the way to the United States "source" of money did give cash gifts to Feist also aped to plead guilty to one expenses of King and the credit union. Supreme Court. Eventually, McCallom various individuals aver the years, but count of RlCO and a total forfeiture of The Internal Revenue Service and other appeared heforore the grand jury and pro- each gift was meticulously recorded and Eal,oo0,000. federal law enforcement and replatmy duced nothing, saying that he no longer gift tax returns fled. The name of Martin agencies conducted coordinated raids at possessed his records. Hogan never was recorded. Largest Credit Union three locations. Several large truckloads Later the agent received a call from n Loss in U.S. History of records and computer files were seized. next-dwr neighbor of McCollom's Wisconsin Cigarette Smuggling Results in King and his associates had systematically summer home. The judge's wife was placing Lawrence (Lany) E. King, Jr. was respon- Multi-Million Dollar Forfeiture looted more than 1640 million from the documents into a metal ghgecan, and sible for the largest credit union failure in depositors of the Franklin Community setting the trash can ablaze while the judge On November 22, 1991, agents from U.S. histow Fderderal Credit Union. The financial insti- stwd there looking an. the IRS, ATE and local law enforcement King hired three development officers tution's failure was the largest monetary The agent obtained a search warrant executed thirteen simultaneous search who ran a pyramid scheme to sell tens of loss by a federally chartered credit union and manged for an mpert in burnt warrants throughout the Pacific Northwest million of dollan: north of celtificates of in US. history records from the forensic lab to remove the seeking evidence of illegal cigarette deposits. A secret account, created by a King was indicted on 40 counts relating to clumps of ashes, placing them in smuggling from the Flathead Indian trusted kiend and confidant, was used to a Klein Conspiracy, filing false tax rehlrns, boxes lined with styrofoam packing balls. Reservation, Montana, to Indian Smoke divert funds for his personal use. In ten bank embezzlement and money laundering The Forensic Lab managed to "reconsti- Shops in Washington State. The value of years, King had diverted 8775,474 to him- and later pled guilty. Lawrence E. King, JL, tute" the ashes and among them were the cigarettes smuggled by Lany and Dorothy self and his family, and in 1987 done, was sentenced to Mtee years imprisonment very checks which had been subpoenaed Clinkenbeard exceeded 546 million over a King stale $3,264,217. and that McCollom testified no longer four-year period. FOR OFFICIAL USE ONLY for tax conspiracy, bank baud and embezzle- company names. The Dowdys co-mingled transfers over $500 from St. Louis, heating and air conditioning equipment ment. Six other conspirators and King's wife rent payments with drug sales and thereby Missouri, to New Jersey or New York. were all expensed. also pled guilty to tax and embezzlement laundered drug profits through the man- Analysis of the foregoing revealed the Randall Walker cashed checks paid charges. agement companies. Gilbert Dawdy also existence of a large-scale cocaine conspir- lo Campbell 66 totalling 5160,000, pur- purchased bare and restaurants as fronts. acy operated by persons of Colombian chased personal assets and paid persaid Captain Cocaine of the Kansas He bragged that the bars, construction, and Dominican ancestry headquartered in expenses. When a federal search warrant City Fire Department and management companies were the Patterson and Passaic, New Jersey. Forty was executed at the Walkers' residence, it sources of money he was spending to federal search warrants were executed in had been stripped of all furniture, fixtures, Gilbert Dowdy waS a ceptain with the buy Rolls Royce, Mcrcedes Renz and St. Louis during an 18-month period. Over and appliances, leaving the house a shell. Kansas City, Missouri, Fire Department Excaliber automobiles. and real estate. 40 defendants were prosecuted on hug Randall Walker pled guilty to all felony who financed cocaine distribution in the A 265-page affidavit for search wmant and money laundering violations, with the counts chmged against him in the original Kansas City, Missouri, area for ten years. was prepared and 13 search warrants were vast majoriv agreeing to plea bargains. indictment without any plea bargain agree- Dowdy and ten other defendants were executed simultaneously by 150 federal The sin defendants who went to trial ment. After heming six days of testimony found guilty on a myriad of federal agents and police officers. received a total of 185 years imprison- in the bid of Trula Walker, the jury charges, including drug conspiracy. Tremendous pretrial publicity occurred, ment. The distribution of more than 300 returned a verdict of guilt) on all six hemsuse, currency structuring, and as Gilbert Dowdy was an incumbent cap- kilograms of cocaine was documented and counts of income tax evasion. At the can- money laundering. The Dowdy drug ring kin with the Kansas City, Kissouri, Fire $1.5 million was seized. An additional $1 clusion of the trial, a pretrial investigation fell in 1990 as a result of a joint investiga- Department. During a one-year period million in wire kansfers betwcen St. Louis was completed an the Walkers. The per- tion which was led by the Criminal therc were 84 newspaper articles printed and New Jersey was documented through sonal financial statement, provided by the Investigation Division of the Internal regarding Gilbert Dowdy, members of the Western Union. Walkers to the Office of Probation wd Revenue Service and included the drug ring, and the hid. Parole, reported cash of 56250 and per- Bureau of Alcohol, Tobacco, and Firearms; The jury listened to an incumbent Personal Expenses Charged sonal property of $5000. Trula Walker had Customs Service; DEA; FBI; and the Jackson County, Missouri, circuit court to Corporation testified during her trial that she had sold, Kansas City. Missouri, Police Department. judge describe how he received $300,000 for cash, all of their personal assets to Gilbert Dowdy made the hgconnections In March 1988, Randall and Trula "Mikee" in twenties over a several-month period antique dealers after becoming aware of between Kansas City, Missouri, and Miami, Walker were indicted for evasion of their from Gilbert Dowdy for the purchase of the IRS investigation. Florida, and gave the couriers machine guns 1981 through 1985 personal income taxes, a building. An obscure lead was developed by the and hundreds of thousands of dollars. One including penalties and interest, totaling Gilbert Dowdy is currently serving a life IRS and US. Attorney's office, which dis- courier alone twk several million dollars to $1,026.000. The Walkers were the former term in Lam Poc, California. closed that the Walkers had hidden a sub- Miami and brought back hundreds of owners of Campbell 66, a large multi-state stantial amount of cash, jewelry, and pounds of cocaine for the Dowdys. trucking company, which operated a net- Western Union Money Transfers valuable antiques throughout Arkansas, On one occasion, a teenage dealer of the work of 41 terminals in 13 states and had Oklahoma, and Missouri. Internal Revenue Dawdy organization was part of a bad drug In late 1988, St. Luis police narcotics approximately 1300 cmplayees. Service special agents armed with search deal with a rival faction. The teenager detectives seized Western Union customer The Walkers extensively renovated their warrants located cash totalling $315,000 hired an arsonist to firebomb a drug house copies of money transfers showing the personal residence and disguised costs sealed in glass jars and buried by the of the rival and six individuals, including movement of funds between St. Louis, associated with this renovation as business Walkers in a farm building; jewelry with women and children, were burned to death Missouri, and Patterson and Passaic, New expenses of Campbell 66. Kitchen cabi- a value of $1 million was found sealed in in the fire. Jersey. Subsequent analysis showed con- nets costing $65,000, a rrsidhtial seru- a ten-foot long sewer pipe and buried two The Dowdys used pmfits from cocaine sistent use of fictitious addresses and rity system totalling $23,000, kitchen feet under the floor of another farm build- sales to purchase distressed property in a commonality of misspelled wards. In appliances costing $15,600. wood and ing. Fur coats, antique furnishings, classic real estate agents' names, girlfriends' January 1989, a grand jury subpoena was marble flooring, molding and trim, and Mercedes-Benz automobiles, gold-plated names, and business management front served on Western Union for all money

156 FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY 157 bathroom fixtures, and museum-quality removed and used as an alternative fuel, the 1989, Smith, on behalf of Sun Fibres, food franchises, and car dealerships. 18th century French art, which had been swamp was worthless to Georgia-Wcific. weed to pay Lippincott and Lee kick- Mullens advised that 22 of the companies originally removed from the Walker resi- There were no potential buyers who would backs on each pound of yam purchased had been resold, resulting in annual returns dence, were found in numerous storage purchase the swamp for the $2,000,000 by MIC. They split the kickbacks equally. to the investors of approximately 25 percent. units. These seized items were sold at auc- invested. The company donated the swamp Between March 1989, and May 1991, During the years 1987 throub 1991, tions through Sotheby's of New lhrk and to a nonprofit organization and claimed a Lippincott and Lee received kickbacks from Mden~received $25 million through his local auctions. conmbution deduction for the fair market Sun Fibres totaling $6,997,429, They fraudulent scheme. During those same At the time of ,entencing, the U.S. District value of the pmperry, which they valued as a opened brokerage accounts and purchased years, he acquired a $2.2 million private Judge accused the Walkers of being "con- working milled peat site, knowing that the luxury assets. Smith further defrauded MIC jet plane, Rolls Royce and Mercedes-Bern sumed by geed," whereupon he sentenced State of Florida would not issue permits for as little or no yam actually existed. automobiles, jewelry and a $1 million Randall Walker to 20 years in prison and a the removal of the property. Over the 18-month period from Sun home in Boca Raton. $980,000 heand Trula Walker to 30 years Georgia-Pacific claimed a $24,000,000 Fibres' initial business, MIC was defrauded Mullem pled guilty to a 44-count indiet- in prison and a $960,000 he. The proceeds contribution deduction on the company's of approximately $54 million. ment including money laundering charges from the various auctions of the Walkers' 1984 Corporate Income Tax Return, know- Within ten days of the discovery of the and on July 26, 1993, he was sentenced to assets were used to pay the outstanding ing that the fair market value of the Santa scheme, multiple seizure warrants, arrest 33 years and 7 months in prison. taxes, penalties, interest, and court fees Fe Swamp was substantially less. warrants and a search warrant had been totaling approximately $2,966,000. obtained. Seized banklhrokeclge accounts South Florida CID Care Mitsubishi International contained $4,437,726. Also seized were Results In Largest Forfeiture Georgia-Pacific Corporation Corporation Defrauded three vehicles, including a new Mercedes, In U.S. History and two condominiums. On October 8, 1991, Georgia-Pacific In edyJune 1991, special agents nf the Between 1986 and 1993, the Fort A 110-count indictment was returned a Corporation, the largest paper products IRS and FBI learned of a scheme devised Lauderdale District was involved in the week later, charging Lippincott and Lee company in the world, pled guilty to by Joseph Lee Smith of Anniston, Alabama, investigation and prosecution of a mari- with money laundering, fraud and conspir- Section 7201 for the tax year 1984. The and Raymond B. Lippincott III and Mary juana smuggling organization responsible acy. The first day of trial they negotiated a court ordered Georgia-Pacific to pay a Ellen Lre of Atlanta, Georgia, to defraud for importing and distributing over one plea to income tax evasion, fraud and con- $5,000,000 fine within 7 days. As a Mitsubishi International Corporation, half million pounds of marijuana in the spiracy. They each were sentenced to 27 special condition, Georgia-Pacific was (MIC) of millions of dollars. Lippincott early 1980's. This investigation ultimately months in prison, 3 years probation and ordered to pay to the Treasury Department was the assistant general manager at MIC resulted in the forfeiture of the largest ordered to pay full restitution to MIC. $16,000,000 within 7 days pursuant to the and Lee was an assistant sales manager in legalized card playing casino in the world. Smith consented to forfeit Sun Fibres, Inc., provisions of the plea agreement. the textile division. Smith owned and oper- At the time of its seizure, the casino was his $800,000 home, a hank account, four Georgia-Pacificdevised a scheme to ated Sun Fibres, Lnc., which brokered and also the largest single asset seized in U.S. expensive vehicles and a boat. recoup the company's investment of approx- processed textile hbrrs. In late 1988. history. The club building itself occupied imately $2,000,000 in the Santa Fe Swamp Smith established a business relationship over 100,000 square feet and employed Thomas R. Mullens located in cenwal Florida. Georgia-Pacific with MIC, through Lippincott and Lee, over 2,000 people. The casino enjoyed had acquired the swamp far the purpose of whereby MIC provided Sun Fibres with the Thomas R. Clullens created Omni Capital gross receipts of approximately $100 mi- removing the peat and using the peat as an funds necessary to purchase various types Group Investment Firm as n vehicle to lion per year with a net of $25 million and alternative fuel. After spending substantial of industrial and carpet yam which wms to dehud investors of their money. Mullens had an after debt value of 1100 million. In time and money, it became apparent that the he processed by Sun Fibres and ultimately solicited clients to invest their money with addition, an entire marina, a lux9water- State of Florida would not allow the swamp resold to MIC's customers. Omni Capital, and he falsely advertised that front residence, a 90-foot yacht, a race to be drained and the peat remwed and Lippincott and Lee acted as agents for Omni had over $30 mlllion in assets, ah- boat and numerous luxq cars and trucks used as a fuel. If the peat could not be MIC in the dealings with Sun Fibres. In ing the acquisition of 26 companies, such were seized and forfeited. as manufacturing facilities, radio stations,

FOR OFFICIAL USE ONLY FOR OFFICIAL USE OWL"

April 1990. when hvo uniformed Mexican years in prison for drug trafficking and people into participating. Individoals on attempted to launder mom thau $12 mil- Customs officials were caught as they money laundering. welfare and receiving a housing allowance lion in U.S.currency fmm January 21, attempted to leave the United States with were told they could get a $200 refund to 1993, through March 24, 1993. Sasooon the currency. ELF Scheme help pay their utility bill. Students were received currency from narcotics dealers. Of the lfiteteen individuals indirted, all told they could get $500 to help pay He theu tramported the currency to During fire trials, the Houston District hot three pled guilty prior to trial. At trial, tuition. Many taxpayers' names and social Brinks, Inc., where he would drop it off concluded the prosecution of 20 of the 24 the three remaining defendants were con- security numbers were used without their for counting and transportation to the individuals who were indicted in Decem- bank. victed an all counts afharcotics trdficking knowledge. He opened a personal account and ber 1991 for their role in what has been and money laundering and received a In October 1992, bcgan what was going instructed Brinks to deposit the money called the largest Electronic Filing (ELF) maximum sentence or twenty years for to be four consecutive trials involving four into the account. He wined and dined thc scheme in the nation. It involved over 750 money laundering. In addition, two cooper- defendants per trial. Duling the second bank manager and purchased a vacation to false paper and electronic tax returns con- ating defendants pled to money laundering trial, the fist threats against the presiding Palm Springs, California, for the manager taining false Schedule C's; false Earned charges in lieu of being indicted. judge and the case agent occurred. On the and the manager's wife. Mtcr the funds Income Credits and falsc fuel tax credits. Of the three defendants who were con- first day of the fourth trial. a threatening wrre deposited, Sassoon wire-transferred Refunds claimed exceeded $1.7 million ~ictedof operating a Continuing Criminal letter arrived at the judge's chambers and them to accounts in Colombia. and only about $250,000 of this amount Enterprise, two receivcd life sentences and due to this and poor security performance Sassoon's laundering activities came was stopped by the senice centers. one remains to he sentenced. by the US. Marshals, the judge recused to a halt with his arrest on March 24, 1993, The investigation began in early April himself from the entire proceeding. inside the Galleria Mall in Houston. Also 1991. when both the Austin Compliance Top Level Drug Dealer .4dditianal threats occurred during the arrested were two traffickers who had just Center and the Ogden Service Center Gets Life Sentence remaining two trials in Judge Rosenthal's delivered another $2,000,000 to Sassoon. began to detect fraudulent returns. court. delaying one lrial until the entire Agents let Sassoan deliver the money to The Miguel Medina-Reyes organization Informants' calls provided additional infor- courtroom could be thoroughly searched. Rrinks, then arrested the three after they was involved in large-scale cocaine impor- mation regarding the scheme and he return Thirteen defendants were found guilty of met to exchange car keys inside the mail. tation and distribution and internat~onal preparem/F.lech-onic Return Originators conspiracy to file false claims andlor filing Sassoan pleaded guilty tn operating an money laundering which operated in involved. Undercover shopping contacts false claims, two were acquitted, two pled illegal wire transmitting business. The El Paso, Texas; Los Angeles, California; with tm~preparers were conducted on April guilty, hva had charges dismissed before other two defendants pleaded guilty to Phoenix, Arizona; Houston, Texas; Juarez, 15, 1991, and search warrants were cre- trial. one died while incarcerated before conspiring to distribute a controlled suh- Mexico and Chicago. Illinois. cuted an these prcparers' offices on April trial, and four are still fugitives, including stance. The three received combined sen- The Miguel Medina-Reyes organization 17, 1991. Valuable evidence, including the main perpetrator of the scheme. The tences of 28 years. was rrsponsible for distributing approxi- copies of the majority uf the false returns, fifteen convicted defendants were sentenced mately 1,925 kilos of cocaine from August was seized. in April 1993 and received a combined Death Sentence 1989 through November 1991 and trans- Tmw Depa~tmentof Justice trial attorneys total of 26 years and one month incarcera- ported over $15 million in 1J.S. currency. were assigned to conduct the grand jury This OCDETF case involved the importa- tion. The longest sentence was for 63 Hector Rene Rubio, Stepson of Medina- investigation. A team of special agents was tion of huge amounts of cocaine and months incarceration and tlre shortest was Reyes, was responsible far carrying out the required to find witnesses and conduct marijuana into the United States. It was four months. One of the defendants who instructions from Medina-Reyes related to interviews. Since the majority of the tax- smuggled from Mexico into southern pled guilty was ordered to pay $10,000 the importation and distribution of cocaine payers involved in this scheme were from California and transported to Oklahoma. restitution. and the laundering of U.S. currency. Nigeria and the addresses used on the Joseph Eduardo Arvizu (California) and In October 1993, Miguel Mcdina-Reyes ELF returns were fictitious, one of the Money Launderer James Nonvood Hutching (Okldhama) was sentenced to life in prison for drug most difficult tasks was finding the taxpay- organized, managed. and supervised a con- trafficking and money laundering. His ers involved in this scheme. Various scams David Randolph Sassoon, who claims to be tinuing criminal enlerprisr involving hvc stepson, Rubio, was sentenced to over 21 wrre used by the perpetrators to entice a cousin of Vidal Sassoon, laundered and or mow persons, commitl~drepratrd

FOR OFFICIAL USE ONLY felony drug violations, and both received which sold fraudulent trusts for use by cus- America. Many of the trusts (sold for over Together these subjects defrauded the enormous amounts of money. tomers to evade indidual income taxes 1.6 million dollars to more than 350 cus- federal Government of approximately $20 .4 truck driven by Hutching was seized in 38 states. Nine promoters, operating as tomers) were backdated to extend the million. This is the largest case of food from one of Arvizu's stash locations in International Business Association, were fraudulent tax benefits to prior tax years. stamp fraud in conjunctior~with the money Moreno Valle): California, along with convicted on April 9,1992, after a six-week Production af the fraudulent documents laundering 01 the proceeds ever uncovered 1,859 pounds of marijuana, 146 pounds of trial. A tenth conspirator was convicted was facilitated by an attorney in Utah and and prosecuted. cocaine. 1.7 pounds of heroin, 89 pounds after a separate trial on January 26.1993. a Notary Public in Iowa. David, Juana, and Eduardo Rodriguez of Ephedrine (a substance used to cut They were all sentenced to serve prison Conc~almentof customer and trust iden- pled guilty to structuring transactinns and other drugs), assorted guns. records, terms ranging from 28 to 44 months. tities made it virtually impossible to iden- food stamp fraud. On June 14, 1993, scales, and associated equipment. Large The mst scheme was devised by Alex tify thr total amount of evaded tares. Juana Rodriguez was sentenced to 42 quantities of the hugs were found in hid- Yung and lames M. Peterson. Yung and However. testimony at trial showed that a months in federal custody. Edoardo and den compartments throughout the truck. Peterson traveled throughout the L!nited small number of customers used the msts David Rodriguez each were sentenced to In July 1992. Hutching was arrested at States conducting seminars during which to conceal more that $21.3 million in 18 months in federal custody. Maria Pereira his mch in Oklahoma, and special agents they r-xplained how they could use the trusts income from the IKS. Thesc included one and Evaristo Pereira were sentenced to 36 seized a $75,000 home; a ranch and over to conceal income and other assets. In addi- customer who ran one million dollars months. 530 acres of land; two businesses: four tion to totally eliminating income tax lid& through his tmst in one year; another who vehicles; fire tractors; five horse trailers; ity, the trusts were also touted by the laundered $540,000 in a year; two others PCP and Cocaine Trafficker 74 horses, 300 heads of cattle; corrals; promoters as a means of moving assets who disguised $200,000 through their Sentenced to Thirty Years and 598,000 in currency. beyond the reach of the IRS to thwart col- trusts in a single month. Iowa income tax Patrick Johnson was a large-scale PCP and In March 1993, Hutching was found lection of taxes already assessed. Customms records revealed that 30 customers in that cocaine trafficker based in Compton. guilty of numerous charges ranging from were charged a membership fee and state evaded taxes on $5.8 million dollars California. During a sr~rveillancein attempt to possess with intent to distribute requlred to pay fmm $2,500 to 530,000 for of income. cocaine, conspiracy, interstate travel with a package of trusts and advice on how to use November 1988, agents saw Johnson and his associates loading a van with bores. intent to commit murder, continuing crimi- them to avoid paying United States taxes by Largest Food Stamp Fraud The van was stopped and seadied as it nal enterprise, killing an individual in fur- creating a series of sham paper transactions Case in History therance of a continuing criminal enterprise, reflecting fictitious loans and gifts to conceal approached the Mexican border. The boxes and other charges. One of the defendants from the RSthe customer's conuul over the On February 4, 1993, the Laguna Niguel contained over 51.6 million in currency. was given the death penalty, and it is only msts. The other conspirato~swere sales District. working jointly with Special Search warrants were executed at the fifth such death sentence nationwide located in various puts of (he coun- Agents from USDA-OIG, executed search Johnson's and his associates' residences since the 1988 enactment of the CCE try who set up the seminars. closed trust warrants at four locations in Orange and on June 23, 1990. A safe containing over statute permitting such a penalty. The other sales, and provided individual assistanre to Los Angeles counties. The inwstigation $1.5 million in currency was found buried three defendants were sentenced to life customers in evading their taxes. Mer funds centered around food stamp fraud and under concrete and tile in the patio of imprisonment without parole. were funneled through the msts they were money laundering activities of David and Johnson's sister's residence. returned to the trust purchaser from an off- Juana Rodriguee and Evalisto and Maria Lula Mrtz assisted Johnson in conuert- Ten Promoters Convicted in shore tmst disguised as nontaxable gifts or Eiena Pereira. ing drug cash into cashier's cheeks that Nationwide Foreign Trust Tax loans. The Rodripez's were charged with were purchased in a structured manner, Fraud Conspiracy Search Warrants servcd in Sacramento. depositing frandulently obteined food and she used the cashier's checks to pur- California, and Independence, Missouri, stamps drlring the period September 1991, chase propew in Patrick Johnson's name A Wichita District undercover operation netted documents showing that the con- through January 1993, in excess of $9.5 and in nominee names. started in the Kansas City area revealed spiracy, started in 1987, imdved sales of million. A large portion of these funds Johnson was charged with narcotics, the inner workings of a multi-rrdlion dollar trusts allegedly set up in Belize. Cerrhl were then stmctured as they were taken money laundering, and tax violations. He conspiracy based in Sacramento. Califnrnia, out of the accounts in currency. pled guilty and was sentenced to thirty

FOR OFFICIAL USE 0111" years imprisonment. Eight others, inclnd- Country Club Seized purchased for $112,433: a house and con- actions and furnished the various banks ing Johnson's sister and his girlfriend, also dominium in Beverly Hills, California, with incomect infomation when they pre- Ken International, a Japanese corporation pled guilty to narcotics offenses and purchased for $5,100,000; two homes pared their CTR's. primarily ~nvolvedin the development money laundering. and vacant land purchased in Hawaii While the case was at the U.S. Attor- of golf courses in Japan and the United Lula Metz was convicted at trial of for $10,715,000. ney's Office awaiting indictment, informa- States, pled guilty to Title 18. Sections money laundering, strurturing, and Klein Ken Mizuno was released on hail in tion was received that Schmidt was also 2314,1956 and 1957, and ngeed to for- conspiracy. She was sentenced to fifteen Japan while his trial for tax evasion and operating in North Carolina, and a sepa- feit property purchased in the United years imprisonment. . fraud proceeded. Seven other Japanese rate investigation and second undercover states worth over $120,000.000. citizens involved in the scheme were operation was initiated. A second under- The plea followed a two-yea investiga- charged and convicted of tax evasion or cover agent laundered over $100,000 Luxury Car Dealership tion conducted jointly hy the Intemal fmld in Japan. through Schmidt. The Los Angelcs Criminal Investigation Revenue Servicp and U.S. Customs Service. Schmidt turned out to be nothing but a Division took possession of an entire lux- Ken Mizuno, through Ken International; con man out to make a dishonest huck. ury car dealership on lunc 7, 1990. The fraudulently oversold golf club member- Illegal Tax Protester gets Eight His Marshall Islands' bank was nothing investigation also resulted in one of the ships in a Japanesc golf course. Ken Years in Prison more than a post office box and his busi- first large-scale prosecutions utilizing the International transfelred approximately Lonnic Schmidt was a Sacramento busi- nesses were only scams to bilk people of current" reponing laws and the failure to $260,000,000 of the proceeds to the nessman who charactmized himself as the their money. file 8300 forms as pal? of the basis for United States. US. representative of the first Surety Bank He was convicted in No& Carolina of seizure. The transfer of money from Japan into Limited (FSBL), Marshall Islands. Sclmidt witness tampering and ohsbuction of justice. The owners of the dealership, known as the United States was accomplished through was also an illegal tax protester who helped For his efforts, Schmidt received an AS Auto Sales, Sorena Solati, Majid 47 wire transfers from Japanese banks to other protesters hide their money and not 8-year jail sentence in federal prison and Ghassernieh, and Ahmad Vosouoghi, saw a United States receiving banks and by pay their taxes. In August 1985, Schmidt a civil suit was bmught against him by market for sales of high-priced luxury and couriers who canied the funds in the form was introduced to an IRS undercover agent some d his victims for over $250,000. exotic cars to the narcotics trade. of negotiable instmments. (UCA) as part of the investigation of the The names of the buyers %,eretaken Large gambling debts acctued by Mizuno National Commodity and Barter Associ- from the sales records and were run were liquidated by some ofthe fraudulent ation. Schmidt informed the undercover EspionageFax Investigation through TECS and NADDIS. Over 90 per- wire transfers. agent that he could launder the UCA's ille- Two individuals, John Walker and Jerry A. cent of the purchasers either had criminal Properties purchased with the proceeds gal income using FSBL and its U.S. reprc- Whitworth, while serving in the U.S. Naw records, or the purchasers were associates' that were seized and forfeited in the plea sentrrtiw firm International Commercial and after retirement, were responsible for a girlfriends or partners. agreement include: The Royal Kenfield Rusiness Management (ICBM) which he potential catastrophic breach of the com- Through the analysis of the purchases Country Club, adjacent acreage, and owned and operated. Schmidt rcceived municatians security of the United States and the testimony of witnesses. agents several course-front properties located a total of $200,500 from the ondercovw through th~sale of top secret crpto- proved that the business entity known as in Hendenon, Nevada, purchased for agent which he laundered by having the graphic keying material to the then Soviet AS Auto Sales was established for the pri- $18,000,000; the Indian Wells Country cash converted into cashier's checks or Union. The two worked undetected far ovcr mary purpose of laundering the proceeds Club; Indian Wells Racquet Club; Hotel hlre transfers. Schmidt did not file, nor did ten years. earning millions of dollars from of narcotics traffickers through the sale of Indian Wells, adjacent acreage, and sev- he obtain the information fmm the under- the Soviets, before being exposed by luxury vehicles. The Criminal Investi- eral homes located on the golf come in cover agent necessary to file the Currency Walker's estranged wife. gation Division seized AS Auto Sales, 47 Indian Wells, California, purchased for Transaction Reports (CTR) required from Once alerted, the government focused Ferraris, Porches, Mercedes, Rolls Royces $61,262,000; a DC-9 aircraft purchased him as a financial institution. on Walker as the leader of the two. Ovrr- and assorted other business assets. includ- for $5.000,000; a 1990 Rolls Royce khmidt also stl.octured the currency whelming evidence of his deeds was ing several sets of gold-plated Mercedes Corniche I11 convertible purchased for at various banks when purchasing the quickly documented, and he eventually hub caps. $214.900 and a 1990 Mercedes-Benz cashier's checks or making the wire trans- pled guilty to charges of espionage.

FOR OFFICIAL USE ONLI for the 7,724 individuals convicted ranged down doors to gain entry to betting and Despite a massive investigation by the Wagering Tax Enforcement from probation to he-years imprisonment. Foreign Counter-lntrlligenee Diriaion of m~mhersparlors before the operators had with most of the offenders rpceiving prison time to destroy the evidence. These records the Federal Bureau of Investigation and During the 1930's and 1940's, Intelli- Sentences. seldom reflect the countless hours spent nn the Naval Investigative Service, there gence resources directed against garhling During this pefiod of wagering enforce- stakeouts and tracking dam witnrsses to existed little direct evidence to convict werc concentrated on the identification ment activity, there were 6,266 arrests. ohtain the necessary evidence needed to Whitworth of espionage violations. IRS- and pmsecution of major gamblers for tax and the Service seized property valued at secure search warrants. CID took the lead and an intensive finan- evasion. In addition to the earlier laws $2.7 million and currency amounting to Some of our more outstanding cases arc cia1 investigation followed. Excess which banned illegal lotteries, and the $4.5 million. .4dditional tax and penalties noted not so much for the people involved currency expenditures of over $150,000 1941 law which placed a tax on gsmbling recommended for assessments of cases but for other factors. For example, in 1953, were documented (of an estimated lotal machines, Congress passed a numhel- of fully investigated hy the Intelligence agents arrested Winston Reynolds of of $332,000 paid to him hy Walker). new laws which included a prohibition Division during this period totaled $26.1 Tallahassee, Florida. Reynolds was the Whitworth was convicted of espionage, against the interstate transportation of million in tax stamp violations and $207.9 powerful head of a large C~ban-~\meriean subscribing to false tax returns and a wagering paraphernalia (18 USC 1953, in million in wagering excise tax cases. gambling operation that spanned the entire Klein-type tax conspiracy. He was sen- 1951); a against using cornmu- In 1968, the Supreme Court ruled in the Gulf Coast. Reynolds' gambling exploits tenced in Federal District Court to 365 nication devices to transmit wagering Marchetti-Grosso cases that a gambler were so notorious that he wm @en a years in prison, including maximum prison information (18 USC 1084. in 19511; and could use hisiher 6fth amendment privi- seven-year prison sentence. During the time on all of the tax counts. The juv fore- a wagering excise tax and wagering stamp lege as a valid defense against prosecution course of this investigation, law enforce- man credited the evidence derelopcd from tan (15 USC 4401 and 4411. in 1951). for failure to comply with the wagering tai ment sources targeted Rqnolds as a key the IRS investigations as the "absolutely hedwith these new wagering tax provisions. Thereafier, Intelligence discon- suspect in three homicides, including one deadly evidence" that led the jury to con- laws. the Intelligence Division began to tinued criminal invest~gationsdirected where the ~ictimwas to be a government >-ict Whitworth on the espionage and lax create and train wagering squads. These toward prosecution for faihire lo register witness who would testify against him. charges. squads performed the painstaking task of and pay the occupational tax and for will- For eleven years the Gothsrn Hotel in Vitaly Yurchenko, a senior KGB defec- identifying illegal gamblers. bookmakers, ful failure to file the- wagering excise tan Detroit had stood as an impregnable tor, stated that the Walker-Whitworth oper- lottery operators, etc.. and securing the returns. fortress lhat sheltered a numher of Detroit's ation was "the greatest in the histor) of the necessary documentation needed to suc- In December 1974, the wagering tax gambling groups from the local police. KGB" and that "had there been a war, we cessfully prosecute them for violations of laws were revised and primary enforce- Although it was known as one of the largest would have wan it." the federal wagering laws. Because of the ment of these statutes was given to the bookmaking houses in the country, with an number of people involved in these types Bureau of Alcohol, Tobacco and Firearms. estimated annual take d$21 million, no of illegal dealings, the Service directed its In 1977, this responsibility was returned one had ever staged a successful raid Investigative Projects limited resources against the more promi- to the lntelligence Division. As a result of against it. No one, that is. until special nmt gambling groups. limitations in the use of electronic surveil- agents of the Intelligence Division set to Fmm 1955 through 1973, the Intelligence Investigative projects have been used over lance, the reduction in penalties and the work on that task in 1962. After working Division conducted 13,609 fd-scale wager- the years to comhat widespread areas of fact that most states had similar laws, the for months to ohtain the evidence needed ing investigations. Of these, 11.772 were for noncompliance. Usually the area is one prosecution for most gamblers was left to to secure a search warnant, Intelligence failure to comply with the Occupational Tax requiring centralized coordination becarise local law enforcement. The Intelligenc~ deliberately scheduled a raid in a neigh- Stamp requirement; and, 1,837 were for of national importance or cross-regional Division directed its limited resources al boring county Safe in the thought that nonpayment of the wagering excise taxes. aspects. This section describes srreral major gambling operations and continued hey were not the target uf thal day's law The Service recommended prosecution in 88 enforcement projects of significance, as to seek prosecutions for tax evasion and enforcement activities, heoccupants of percent of these cases; 86 percent of these well as other arena of special investigative income tax conspiracy charges. the Gotham went ahoul their daily busi- resulted in indictments. and 76 percent of emphasis. The records of Criminal Investigation are ness. The agents, ever mindful of security, those indicted were convicted. Sentences filled with many reports of agents breaking

FOR OFFICIAL USE ONLY assembled two bus loads of raiders at a Organized Crime Drive a particular location. Under the general year period, corporate income tan evasion, nearby military base. The special agents direction of Strike Force attorneys from the and obstructing the tax investigation by assaulted the ten-story building with axes, Organized Crime and Racketeering Section attempting to prevent several businessmen sledgehammers and crow bars. When the Strike Force Program of the Department of Justice, the agency from furnishing information to the Internal dust settled there were 42 arrests, $60,000 representatives, as a team, plan a concerted Revenue Service. The November 1957. "crime conference" in seized currency and 160,000 gambling investi~ativeand prosecutorid attack on the slips collected. In addition, the agents in .4ppalachin, New York, and hearings by organized crime figures in the location in Louis Osterer Senator John L. McClellan's Committee recovered a number of stolen adding question and decide which parts of that pro- during 1957-1960 awakened public inter- Osterer, a disbarred insurance broker of machines, packs of marked cards and gram are properly allocable to which agen- loaded dice. The Gotham Hotel never est and emphasized the serious threat that cies. Each Srfike Forre representati~~then national notoriety, received a 20-year jail organized crime presents to our social recovered from this raid and was eventu- has the task ul obtaining load penonnel to term after his conviction for evading the institutions. As a result, the government's payment of more than $6.8 maion in ally tarn down. do the actual investigating, reporting their drive on organized crime was initiated income taxes over an 11-year Our case fdes are also filled with reports results to the S~rikcForce, and coordinating under the direction of the Department of togethpr with his conviction for where hard work and the quality of the with other agencies. racketeer- Justice. The Intelligence Division's partici- ing and embezzlement of union welfare- investigation triumphed against people who The themy of the Strike Forw operation pation in this coordinated attack started in pension funds. thought they were invincible. There wai is that a cwrdinated attack directed at February 1961, and tap priority was given This conviction and sentencing of Edward "Swaps" Mulligan who, after 77 organized crimp members will weaken orga- to the investigation of the lax affairs of Osterer, a previously convicted felon with mests by the St. Louis Police Department nized crime hy breaking up its organization. major racketeers. close ties lo high-level Teamsters Union without a conviction, was meeted and sen- In-depth investigations are conducted to In May 1966, the federal government officials and organized crime membem, tenced to nine months in prison for wagering attempt to remove major organized crimc initiated another program designd to was a significant accomplishment for the tax violations. members from their positions in the crimi- strike a blow at key members of the under- Service on a local, regional. and national Then there was Isaac "Tuffy" Mitchell nal hierarchy. While the main targets of world. The Criminal Division, Department level. The ultimate conviction involved the who ran the numbers racket in Indianapolis Strike Forces are the principal members of of Justice, was designated to coordinate a "evasion of payment" and established new for over twenN years, building it up to a organized crime sjmdicates, lower echelon unified program in which various federal case law. $1.5-million-a-year operation. Mitchell. members and associates are frequently agencies concentrated their enforcement Osterer had been the subject of five although alrested 36 times, had sewed only included as targets. efforts on designated organized crime sub- prior criminal tax inveeligaLions by both one three-month jail term. Mitchell's luck The Organized Crime and Racketeering jects in selected target cities. Each project the Brooklyn and Manhattan Districts, all ran out though, alter he was arrested by Strike Force program has had successful was called a "Strike Farce." Criminal of which resulted in discontinued investi- special agents far wagering tax violations. prosecutions of a number of criminal taw Investigation continues to be an important gations. Significantly, those investigations The judge gave Mitchell five years to sm. caws involving racketems. A sampling is participant in this program. all focused on income tax evasion as Wagering was not a poor man's racket as presented below. evidenced by Ham. "Doc" Sagansky and Strike Forces continue in the following opposed to willful failure to pay. Since the loca~ions:Buifalo. Detroit, Brooklyn, 1960's. Osterer filed returns reflecting hlonis "hloe" Weinstein. The" operation Michael Pappadio was so successful that they offered our Newark, Chicago, Boston, Cleveland. substantial tax liabilities. Throughout the Pappadio, the brother of slain mob chief- Boston undercover agem a real estate deal Kansas City. Los Angeles, New York, same period, he utilized friends, relatives, tain Andimu Pappadio and an organized whereby they would hold a $625,000 molt- Foa Lauderdale, Philadelphia. San and dummy corporations to place his mime figure in his own right, was indicted gage on an apartment house in Rostan. The Francisco, New Orleans, Las Vegas, assets beyond the reach of the Internal in lkcember 1978, for tax evasion and special agent took care of their housing and Washington, D.C. Revenue Service. related charges. Pappadio, the owner of needs by getting Sagansky and Weinstein The Strike Force is a team made up of This case received extensive news seved New York City garment center a roam at the nearbv federal penitentiary. representatives of all federal agencies with media coverage. One prominent New York significant enforcement responsibilities firms, was charged with personally evading City newspaper headlined, "Mob Adrism relating to organized criminal activities in over 5500,000 in income taxes over a four- Gets 20 Years for Ta* Fmud."

FOR OFFIClll USE ONLY Finally, Federal District Judge Kevin powerful New York crime famil? heads, degree of usefulness in enforcemen1 of In 1986, Canpss passed the Money nu&, prior to imposing sentence, com- was sentenced to 10 years in prison for criminal, civil, and regulatory Laws. Laundering Control Act, which created mented about Osterer, "You got into trou- income tax, labor racketeering, and mail Under the authority of the BSA, offenses for money laundering and for ble because you just won't pa" your bills." fraud charges. Franzese was thc target of Treasury's replations impose four major knowingly engaging in monetary transac- He then sentenced him to 20 years impris- a 3-year investigation by the Brooklyn reporting requirements. The Currency tions in property derived from certain onment, a $70,000 fine, and thr: cost of Organized Crime Strike Force. In a unique Transaction Report (CTK), requires desig- criminal activity (18 U.S.C. 1956 and prosecution. The judge remanded him to twist, at his sentencing the government nated hnancial institutions to report case 1957). Violations of these provisions very jail in lieu of $3.4 millibn bail because he sought and obtained a judgement against transactions exceeding $10;000. The nften involve conduct designed to avoid considered Osterer "a real danger to the Franzcse whereby hr admitted to having Currency Transaction Report by Casinos the reporting requirements of the BSA. community" evaded taxes on over $7 million in income (CTRC), requires that casinos report cur- Further, the "structuring" or breaking up during the years 1979 through 1985. rency transactions in excess of $10,000. of large amounts of cash into amounts Dominic Frontiere Franzese was the key defendant in a 99- Thc Report of International Transportation helow the $10,000 reporting threshold, page, 28-count indictment. This investiga- of Currency or Monetq Instruments to avoid the BS4 reporting requirements, Frontiere was the husband of the owner tion successfully prosecuted a total of 13 (CMIR), requires that all penons report was expressly made criminal. Willful vim of the I~EAngeles Rams Football Co., defendants. .411 13 received sentences of 2 the import or expoxi of cmncy and cer- lations of the provisions of the BSA, sec- Georgia Rosenbloom Frontiere. During the to 10 years in prison, fines, and probation. tain other monetary instruments in excess tion 6050(I) and the money laundering 1980 pre-Superbowl period, Fmntiere took of $10,000 into or out of the United States. statutes can result in severe criminal and control of aver 10 percent of the 27,000 Finally, the Report of Foreign Bank and civil penalties and forfeitures. Superbowl tickets in the possession of the Financial .4ccounts (FBAR), requires per- Aggressive enforcement of the various Rams. Through his organized crime con- Money Laundering sons to make an annual report of their pro- money laundering stalues has resulted in nections, Frontiere sold those tickets at prietory interest in foreign accounts which a growth in the filings of the various cur- inflated prices and failed to report that The Criminal Investigation Division's exceed $10,000. rency reporting forms, particularly the income on his and his wife's joint 1980 Money Laundering Program is the campli- Trrasury Delegation Order #15-41 delc- CTR forms and 8300 form. The following ance effort to address criminal violations tax return. It is estimated that Fmntiere gated criminal jurisdiction over all finan- chart reflects the number of these forms received between $500,000 and $750,000. of the Bank Secrecy Act, the Money cia1 institutions and civil jurisdiction over Hed in recent ymrs. Laundering Control Act of 1986, and Frontiere was sentenced to serve one year any financial insitution not under the regu- and one day, be~inningin January 1987. 6050(1) of the Internal Revenue Code latory supervision of othrr federal banking Summary of Number of (Form 8300 filing requirements). agencies or the Securities and Exchange CTR18300 Document Filings Henry Muihui In 1970, the Congress, at the urging and Commission (SEC) to the IRS. Also, IRS For FY' 87 FY' 93 with the support at the Treasuzy Depart- - Henry lluihui was the syndicate leader in was delegated responsibility for civil juris- ment and other law enforcement agencies, Form Hawaii, ascending from the ranks of the diction aver all miscellaneous financial CTR glW enacted a succession of laws to enable law institutions for which over sigh^ authority Winford "Nappy" Pulawa family that con- enforcement officials to detect and prose- 1987 4.607 13.000 trolled organized crime in Hawaii during has not otherwise been delegated. Appron- cute drug trafficking and other criminal the 1960's and early 1970's. Huihui was imately 25,000 miscellaneous financial activities which generate hrgc amounts convicted on various tax charges in 1975 institutiom have been identified to date, of illegal proceeds, and the laundering of and was sentenced to 15 years in prison. and the count continues to expand. those proceeds. The "Bank Secrecy Act" In 1984, section 6050(1) wa.5 added to the (BSA), enacted in 1970, gives the Treasury Michael Frenzese Internal Revenue Code to require trades or Department authority to require the filing businebsra not sub& to the Bank Sec~zcy of reports and maintenance of records Michael Franaese, the subjcct of numerous Act to 1-eport (on IRS Form 8300) receipt that have been determined to have a high television news reports, who at the age of of cash involving mare than 510,OW. 34 became one of the richest and most

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Investigative Efforts per month and was tunling additional various banks in Florida. It was later deter- Intelligence Divisions of IRS was famed. business away. He admitted to earning mined that Garces had only been visiting It established criteria and identified sub- and Results more than $1 million per year as a money Florida, and he actually resided at a con- jects far investigation. exchanger and courier, and that many of dominium complex in Fort Lee, New Jersey. In July 1971, IRS established the Over the past decade, the Title 31 report- his clients were alleged to be involved in During the next six months, special Narcotics Trafhkers Project (NTP), ing requirements and the CTR provision in large-scale narcotics activities. agents began a surveillance of Garces' res- designed to make systematic high ~pli~rit~ particular have emerged as the primaly Milan-Rodriguez was convicted on cur- idence and identified numerous memben tax investigations of middle and upper statutory weapon a@$ money launder- rency, narcotics, and tax charges and on of his organization. The investigation was echelon narcotics dealen. Specially ing. Criminal Investigation has, with pat January 2, 1986, he was sentenced to brought to a conclusion on September 4, assigned revenue agents, special agents, success, devoted substantial resources to serve 35 years in prison and fined $6.49 1986, when special agents executed search and revenue officers worked e.dusively the enforcement of Title 31. Our experi- million. warrants at three different locations and on the project. Jeopardy and termination ence with Title 31 investigations has seized 307 kilograms (675 pounds) of assessments were utilized in an aggressive uncovered the existence of numerous Carlos Sarmiento and cocaine and $950,000 in cumency and manner against narcotics tr&ckers. large-scale money laundering organiza- Robert Del Pino money orders. In all, eight memben of the In March 1974, NTP activities were tions that are in the business of devising ring were arrested and subsequently con- integrated into the IRS' regular tax From August 1985 thmugh February 1986, sophisticated schemes to conceal the victed on numerous felony charges. enforcement effort and on September 24, Criminal Investigation undercover agents source and amounts of taxable revenue 1975, the Narcotics Trafficken Program laundered money on behalf of a Colombian earned. Bank of Boston was formally abolished. cocaine trafficking group. These agents received currency from Sarmiento'a organi- In February 1985, the First National Bank High-Level Drug Leaders zation on 20 occasions. The currency was of Roston pled yilty to a felony charge Tax Enforcement Program Significant Cases either converted to cashier's checks which that it failed to inform the IRS about $1.2 were remrned to the organization or wire billion in cash that it exchanged with nine On April 27, 1976, President Gerald R. transferred out of the undercover account. European hanks. The case generated media Ford directed that a tax enforcement pro- Ramon Milan-Rodriguez The operation identified the memben of coveraFr throughout the countly and even gram be developed ior high-level drug On May 4,,1983, following extensive sur- the Smiento oqanization as well as resulted in congressional hearings. trafficking. President Ford, in his message veillance, Milan-Rodriguez loaded his numerous "sta~hhouses" where the cur- to Congress, stated, "We know that many Lear jet at Fort Lauderdale International rency was accumulated. of the biggest drug leaders do not pay Airport with approximately twenty boxes Agents in Miami and Los Angeks iaun- income taxes on the enormous pmfits they suspected of containing U.S. currency. dered approximately $18 million and Narcotics Proiects made in this criminal activity. I am The airc~aftwas stopped by Operation seized approximately $12.5 million. Also, confident that a responsible program can Greenback agents and an outbound search 270 ~oundsof cocaine was seized during be designed whch will pmmote effective enforcement of the tax laws against thosc was conducted. The hventy boxes were the operation, As a result of this investiga- Narcotics Traffickers Project found to contain $5.4 million in US. tion, ten individuals were indicted in Las individuals who are currently violating In June 1971, President Richard Nixon currency. Angeles and Miami. M. these laws with impunity." By his own admission, Milan-Rodrignez called for an increased effort to combat the As a result of this directive, the had transported or moved mare than $1 Guillermo A. Garces. et al. growing problem of drug abuse, A Target High-Level Drug Leaden (HLDL) Tax billion in U.S. currency for his clients over Selection Committee, composed of Enforcement Project was initiated in July During October 1985, information was Treasury's Director of Law Enforcement, the past seven to ten years. During inter- 1976. The HLDL Project focused on high- received that Garces and three other views with special agents, he admitted with members from the Rureau of level traffickers, investors, brokers. bankers; Colombian nationals were repeatedly laundering from $17 million to $25 million Customs, the Bureau of Narcotics and purchasing money orders with eumncy at Dangerous Drugs, and the Audit and

FOR OFFICIAL USE ONLY and money laundering specialists, pmued Organized Crime Drug lntemal Revenue special agents have shipments of narcotics. 13istorically. these both tax violations (Title 26) and banking Enforcement Task Force been recognized in the task forces as individuals were not often targeted by drug violations (Title 31, Bank Secrecy Act]. In (OCDETFI Program fmancial expeas. One reason for this law enforcement agencies because there July 1976, IRS signed a Memorandum of In Janu~ly1982, President Ronald recognition is the Senice's unique ability was no firm informational or evidentiary Understanding with the Drug Enforcement Reagan established the South Florida Task to idemify the "professionals" in our soci- link between them and narcotics. The Administration (DEA) which set forth the Force to organize a coordinated attack ety who from involvement in nar- only viable means of attack againat this roles of the agencies in a joint, cooperative against drug traffickers and their organiza- cotics trafficking. This classification class of criminal is through financial effort to identify and investigate hi&-level tions in South Florida. This task force includes lawyers who finance traffickers' investigations, where the paper trail of targets. This was updated in February 1980. sewed as a prototype for hrodhased. organizations and help launder narcotics money earned from the sale of narcotics IRS and DEA signed a joint Memorandum interagency efforts in interdiction, investi- money. It also includes the accountants is tracked to its ultimate beneficiaries. of Cooperation in June 1980, which gation, and prosecution. who keep the books and disguise the The success of Climinal Investigation's stressed, to the respective field personnel, In October 1982, President Reagzc source of narcotics proceeds. It includes i~wolvementin the OCDETF Program is a need to cooperate by sharing information established the Organired Crime Drug doctors, engineers, stoekbmkers, and reflected in the following table: as allowed by law (IRC 6103) and to con- Enforcement Task Force (OCDETF) wealthy businesspeople who have financed duct joint criminal investigations. This lat- Program. a major interagency drug inves- ter Memorandum also reafhmed a joint Average tigative initiative which expanded the commitment lor an effective effort by both 96 of Convicted Prison original concept into 13 distinct OCDETF agencies against major narcotics traffickers Slsff Years Prasecutims Infonnatinnl Sentenced Sentencpd Total Fines Regions under the auspices of a core city Expended Recommended lndictlnents Convictions to Prison lmonthsl IThourandsl* who also violate the tax laws. U.S. Attorney. The original pahcipating The Tax Equity and Fiscal Responsibility 1983 156 127 70 22 89% 50 15 Federal agencies included: the BATE Act (TEFRA) permitted the Service to pre- DEA, FBI, IRS, heU.S. Attorneys' offices. sume that, unless the individual identifies the US. Coast Guard, the U.S. Customs another person as the owneq the individmal Service, and the US. Marshals Semite. in possession of 910,000 or more in cash is The Immigration and Naturalization Service the owner, and (1)the cash represents pss subsequently joined the program. OCDETF income of that individual, (2) the owner brings togethm expelt financial investigators shall be taxed at a 50 percent rate and, from IRS and Customs, working hand in (3) collection of the tax is in jeopardy This hand with experts from FBI, DEA, and resultcd in numerous assessments; for BATF in documenting substantive viola- example, an individual was assessed ovcr tions. Through joint investigations, the ~,000after she was found departing financial history of the entire trafficking Kennedy Airport with $120,065 in cur- organization can be developed. rency In another case, an individual was With the implementation of the OCDETF discovered to have $131,400 in cash. This Program in 1983, Criminal Investigation *hmto Pi 1g91 rnvosti~ations on resulted in an assessment of $65.700. fines for indicted IRS charpa, heselucnced provided the largest conunitment of resour- on other were not included. ces of any Treasury agency. In addition, procedures relating to grand juries were streamlined and review processes were emedited far OCDETF cases.

FOR OFFICIAL USE ONLY FOR DFFlClll USE ONLY

* "Fly-by-night" practitioners received Since its inception, CID has been a their knowledge or consent, had falsely the greatest attention in the Return Questionable major contributor to the pmgram, second claimed itemize3 deductions, personal PreparersPmject. only to DEA, expending more than twice exemption, and employee business expenses Refund Program resources every large number of cases were identified the reimbursed year. A on their income tax returns. Many of his as a result of a technique referred to as We continue to expand our involvement clients could neither read nor write English, Behe 1977, IRS efforts to identify refund in the overall narcotics program by station- "shopping." Special agents, using assumed and Rivera frequently divelted to his om schemes consisted of numerous frag- ing special agents at the Financial Crimes identities, posed as clients and presented a use money intended to pay his clients' tax mented programs with little or no coordi- set of facts to questionable practitioners to Enforcement Network (PinCEN), El Paso liabilities. He was convicted on all counts nation among them. As a result of this determine the accuracy of returns prepared Intelligence Center (EPIC), National Drug and sentenced to nine years in prison, with fragmentation, most schemes identified by the practitioners. Each district estab- Intelligence Center (NDIC), Document six years prohation to follow imprisonment. were handled as isolated incidents, and Exploitation Unit at the Pentagon, and lished its own pmgram for "shopping." Of corrective measures were taken at the foreign posts of duty: currently in Bogota, the 3,200 practitionen contacted through- appropriate technical level with little or no James Damon Colombia and Mexico City, Mexico. We out the nation during the 1972 fling sea- dissemination of the findings and action are exploring the feasibility of stationing son, more than 1,800 prepared inaccurate James Damon, an Austin, Texas, tax con- taken to other groups within the Service. agents in other foreign financial centers or false returns. A total of 4,977 tax returns sultant, was convicted in April 1981, on In 1977, as a result of unfavorable pub- in the near future. were prepared for Service employees pos- one count of conspiracy to file fraudulent licity about refund schemes, congressional OCDETF cases have consistently ing as clients during the 1973 filing period. tax returns for clients and 41 counts of interest, and IRS studies, the Service achieved a higher success rate as compared Of those returns, 1,112 (or 22 percent) preparing fraudulent tax returns. Damon developed a nationally coordinated detec- to d other cases. They are completed in a appeared fraudulent. was found guilty of listing his wage- tion effort called the Questionable Refund shorter period of time and result in longer Widespread use was also made of com- earning clients as being self-employed. Pmgram. This pmgram still exists today. sentences and higher hes. Since most puterized lists especially developed to The fictitious businesses then suffered Since its inception, the Questionable OCDETF cases are work& under the mga- identify fiuspect preparers and to identify massive lasses that were deducted from Refund Program has detected over 18,000 nirational approach, many fallout cases the tax retums they prepared. their taxes. He was sentenced in May schemes involving approximately 200,000 require less time and effort to prepare for The Project peaked during the 1973 1981, to 14 years imprisonment and a tots1 returns and $450,000,000. prosecution. filing period. From January 1972 to June of $25,000 in fmes. A classic care of this involved Mr. and 30, 1973, Intelligence Dirision investiga- Mrs. Amo Amdt, both foreign nationals, tions resulted in the arrest or indictment Olive M. Elder who devised a scheme that ultimately put Return Preparers Proiect of 420 tax return preparers. Criminal Olive M. Elder, a tax return preparer in $645,000 into their hands in Switzerland. actions were filed against practitioners Pe-ilk, Missouri, was sentenced in After years of legal negotiations, this cou- in 26 states. For some time, the Service had heen April 1982. to three yean in prison and ple was finally prosecuted by the Swiss for Presented below are cases indicative financial crimes. However, it took almost concerned about unscrupulous tax return fined $6,000 on three counts of a criminal of investigative efforts under the Return six years to recover the funds. preparers, their effect on taxes paid, and information that charged her with aiding Preparers Project. Fortunately, the funds were available to be their effect on voluntary compliance. and assisting in the preparation of false seized. Even in cases where IRS identifies As a result of this concern, the Senice Federal income tax returns. The judge Gilbert Rivera the individual, we sometimes get the^ too launched a nationwide program during the commented that audits of returns prepared late and the money has been spent. Typical 1972 filing period to identify and prose- Gilbert Rivera was indicted in 1973 on by Mrs. Elder resulted in the 1RS recom- of this situation are schemes pulled off by cute unscrupulous tax return preparers. twenty-two counts of aiding and assisting in mending additional taxes of approximately inmates, who have used the funds to pur- preparing false income tax retums. His 8350,000 against clients. Mrs. Elder had chase narcotics, brihc officials, and even clients testified at trial that Rivera, without been in business as Ollie Elder's Bookkeeping and Tax Service. conbart for the killing of other prisoners. As a matter of fact, it was a letter to the Commissioner 60m a pupmanager in

FOR OFFlClll USE ONLY FOR OFFlClAl USE ONLY 1976 that fust brought attention to the of electronic filing and funds transfer has Statistics available from 1980 fonvard Peter Boyle and Christopher Walken and prison problems regding multiple flers. provided ever increasing challenges. The indicate increasingly significant accom- author Erica long. Subsequently, in 1979 the General Account- amount of refund fraud has dramatically plishments by Criminal Investigation in The shelter supposedly involved the ing Office testified before a congressional increased in conjunction with increases in connection with the Abusive Tax Shelter legitimate buying and selling of govern- subcommittee suggesting that the Service both electronic fling and the Earned Program. Cases initiated increased from ment securities. Markowitz utilized false needed geater cooperation with federal Income Tax Credit. Accordingly, more 92 in FY 1980 to 312 in FY 1986. During documents to record fictitious trades to and state prison systems in order to stem sophisticated means are currently being that same period, pms~cutionrecommen- make it seem that his partnerships suf- the lide of what was pprceibed a a grow- developed to detect fraudulent returns. dations increased from 31 to FY 1980 to fered enormous losses from 1979 to 1983. ing problem. Schemes were being discov- Currently, the Electronic Fraud Detection 231 in FY 1986. The fraudulent deductions ranged from $4 ered indicating that vast networks existed System (EFDS) is under development in During 1985, senicr: center progas to more than $10 for each dollar invested. within some prison systems whose sole conjunction with Compliance Research were developed to idenbXy abusive tau shel- Markowitz, a graduate of the Massa- purpose was to test and penetrate the IRS and the Las Alamos National Laboratory ters on the "front-end" with the purposed chusetts Institute of Technology and fomer processing system. '4dditional systemic checks have been and stopping the issuance of the refunds. During Menill Lynch commodities trader, utilized Elaborate measures have been taken to will continuc to be put in place to stop the 1985 and 1986 filing seasons, approxi- thp profits earned from his colossal shams try to combat these attempts but, even fraudulent returns before they are processed. mately $19.5 million in mfunds were to enjoy a high-powered life style wbich today, we are still faced with continuing stopped in connection with this program. included homes in Washington, D.C. and attempts, especially from those who ironi- In 1986, Congress moved to eliminate New York, investments in raw horses, and cally are incarcerated for previously fling Abusive Tax Shelter Project the pmlifcration of abusiie tax shelters an interest in the Waskington Capitals fictitious returns. The boldest attempt was through legislation -the Tax Reform Art hockey team. It all came to an end, by Paul Spitler who attempted to recover however, in April 1985, when Markowitz Tax shelters are viable means crealed by of 1986. However, during the 7-year period over $6,000,000 in refunds by using the pleaded guilty to conspiracy and tax Congress to spur investment in selected from 1980-1986, Criminal Investigation simple expedient of filing amended Forms charges, admitting evadiug taxes on more economic enterprises. Such enterprises conducted some of the most complex and 941 for a major corporation. include real estate. research and develop- significant investigations in the history of than $1 million of personal income. Another prisoner, doing time for filing ment; and oil and gas. Chnrally, tax shel- law enforcement in this country in a ma- false claims, obtained over 120 Social Frank Forresterllnternational ters provide tax incentives to investors; to thwart a major threat to our voluntary Security numbers from military uniforms however, along with the benefits af tax compliance system. The following cases Dynamics, Inc. (ID11 that were being laundered by the prisoners are indicative of tax shelter investigative shelters have been massive abuses. The defendants in this case promised indi- in the local facility. Utilizing these num- efforts during this period: In response to the gmulng prohlrm of viduals that they could escape liability bers, the inmate then flooded the Service abusive tax shelters, Criminal Investigation from federal income taxes by signing a with bogus returns. However. this particu- Edward Markowitz instituted an Abusive Tax Shelter Project in "personal services contract" with their lar scheme was detected because an alert 1977. Due to the complex nature of these organization in which they purportedly tax examiner recognized his handwriting, Characterized by the U.S. Attorney for the entities and the unusual considerations sold their lifetime services far one dollar having previously worked on the very Southern District of New York as one of found in investigating these multi-regional per year. However, the individuals contin- scheme that had caused the prisoner's the largest tax evasion cases ever prose- conspiracies, most involving millions of dol- ued to work for their present employers dawdall in the first place. cuted. The Markowitz case involved sev- lars, Criminal Investigation combated them but turned over their to a During the eighties, the program utilized eral hundred investors and $445 million in using undercover operations, pndjuv false deductions. The list of investors Panamanian co~poration.They immedi- disc~iminantfunction analysis to develop investigations, and nationally coordinated duped by Markowitz includes many well- ately received checks equal to 90 percent profiles and more stringent selection crite- cases and projects. of their paycheck from an entity known as ria. The program relies to a great extent on known individuals such as comediadfilm director Woody Allen, television personal- the ID1 Credit Union. The claim was this the labor intensive scrutiny of paper docu- ity Dick Cxvett, actors Frank Langella. money represented tax-free gifts to the ments for indications of fraud. The advent investor. Underreported income and false

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY and fraudulent deductions from investors 512 million pawed thmugh the Royal nation's economic conditions worsened, Armen Condo totaled in the multi-millions of dollars. Investments bank account. The investiga- the movement became mare appealing. Amen Condo, who founded Your Heritage One of the major promoters of the scheme, tion resulted in indictments on conspiracy, People from all walks of life became Protection Association in 1975, adoptcd Frank Fonester, died before he could he mail, securities, and income tax fraud. At involved, and the schemes became more thc position that income taxes need not be brought to trial. However, after a 2-week the conclusion of a 6-week trial, the judge, sophisticated. The schemes ranged from paid because Federal Reserve notes do not bial, James C. Russell, Earhl R. Schooff, citing March's lack of remorse and consid- constitutional arguments and use of mail- constitute legal, taxable income. and Lawrence M. Richey were convicted ering his prior criminal record, sent a order ministries to schemes involving of conspiracy and tax evasion charges. Additionally, the association billed itself as strong message ta promoters of abusive domestic trusts (Family Estate) and com- This was an example of the a church. At one time there were approxi- investigation tax shelters by sentencing him to 21 year8 plex foreign trust arrangements. The courts multi-disbictiregion approach being uti- mately 6,000 members. One of the associ- in prison. have repeatedly struck down the schemes lized to deal with nationwide conspiracies ation's slogans was, "abolish the IRS." used by the protesters. and tax evasion schemes as investors and Condo was convicted of mail fraud and During 1977, an IRS Illegal Tax co-conspirators were spread coast to coast. assisting 1,474 association members in Illegal Tax Protester Program Protester Study Group was established. Russell and Richey were investigated by filing documents that understated their tax A8 a result of this smdy, the Service estab- the Seattle District and Schooff by the liabilities. Condo received an 8-year Protest and resistance to the assessment lished uniform procedures in Januaq Portland District. prison term and a $92,500 fine. He was 1979. These procedures set up Illegal Tax and collection of taxes is not new. (After assessed civil penalties of $1.4 million. all, the Boston Tea Party was a tax pmtest.) Protester Teams as part of the Criminal Harry March, et al., Royal Since the adoption of thc Federal Income Investigation Branch in each service cen- Investments, Inc. lwin Schiff Tax in 1913, there have been periodic ter and established definitions of an illegal This scheme, which irlvalved the promot- instances of individuals disabe)lng the tax tan protester and the various schemes. Invin Sehiff, a nationally known leader ers of abusive tax shelters and a CPA, laws as a method of protesting those laws The number of returns and documents of the tax protester movement, claimed he included fraudulent investments in offke or of protesting some other specific govern- that the service centers are identifying as had no "income" as defined by the G.S. buildings, oil drilling rigs, cattle feeding ment policy. protester-filed have declined over the last Constitution and the IRS tax code. Schiff equipment, mobile home factories, and a During the late 1960's. the movement several years. During 1982,49;493 such also expressed the belief that federal ranch. The pmmotez a previously con- grew when protest returns were filed by returns and documents were filed. During income tax is a valuntaly assessment and victed felon operating in the state of individuals who shared similar beliefs 1986. these had declined to 19,334, a the IRS had no authority to compel citi- Washington. employed a Ponzi scheme regarding: (1) the Government's right to decline of 61 percent. During the same zens to pay the tax. Schiff has mitten sev- to roll-over monies from ''old" to "new" tax individual income: (2) the taxability period of time, the number of identified cral hooks including "Haw Anyone Can investors. The investors in thc scheme of paper money vs. gold or silver; taxpayers filing these returns and docu- Stop Paying Income Taxes" and "The were mostly elderly individuals, unsophis- and/or, (3) the unwarranted gmwth of ments had declined from 53,628 to Great Income Tax Hoax." Schiff was eon- ticated in financial matters, who proved to the government. 18,472, a decline of 65.5 percent. The victed in June of 1980 an two counts of he easy targets for the subjects' fraudulent Individuals generally used a protest frivolous tax rehrrn penalty of $500 failure to file tax returns, on which he promotions. Adding additional credence to scheme which involved filing a blank Form and our prosecutions have significantly served 5 months in prison and paid a the scheme was the panicipation of the 1040 tax return and citing the Fifth decreased the number of protesters. $5,000 fine. Subsequently, Schiff was CPA and his free tax return preparation Amendment or manetaq arguments. The cases presented below are indica- again convicted in 1985 on three counts service for investors. Each of the promo- The movement continued to grow and tive of our investigative efforts against of evasion of personal income taxes and tions involved contained elements of spread acmss the country as pmtesten illegal tax protesters. one count of failure to filc a corporate tax investor fraud. In total, approximately 265 made speeches and offered seminars often return. Schiff was sentenced to 3 years in investors were involved and in excess of misrepresenting the tax laws. As the jail, 3 years probation (~thspecial condi- tions), fined $30,000. and ordered to pay the cost of prosecution which was $27,600.

FOR OFFICIAL USE ONLY Gordon Kahl receipts and/or claiming false deductions. to the undercover agents which verified the Tax Haven - Undercover techniques were used to goad skimming. A search warrant was obtained Gordon Kahl purportedly was a member of Offshore Bank Project advantage in these cases. and executed. Thcre was ~lentyof evidence a vigilante goup named Posse Comitatus. During the active years oi the project to support a recommendation for prosecu- The pl~ilosophyof Posse Comitatus (Latin In recent years, tar haven countries such from 1981 to 1987, 88 cases were initiated tion. In July 1984, Sorge was sentenced to for "power of the county") seems to join as Switzerland, the Bahamas, and the and 26 of those were recommended for two yean to serve, 10 months suspended, Christian fanaticism with racial hatred and Cayman Islands have been increasingly prosecution. and 24 months probation. militant individualism, Mqy of the mem- ~lsedby individuals to conceal income for Presented below are representative bers of this group say they believe God the purpose of tax evasion. Growing num- cases investigated under the Business Salvatore Sorrentino is telling them not to pay taxes. Kahl hers of narcotics traffickers, money laun- Opportunities Project. attended Posse Camitatus meetings in Sorrentino was co-ownel. of the restaurant derels, illegal tax protesters, and abusive Texas and is believed to have tried starting ~alled"Boat 57-Rio de Janeiro" in New tax shelter promoters are turning to inter- William E. and Gladys A. Jones a chapter there. In February 1983, Kahl Ymk. As a result or "shopping" this bnsi- national banking and establishing offshore shot and killed two federal marshals who This couple omed the Acme Meat neis, enough evidence was obtained to corporations in tax haven countries where were attempting to serve Kahl with war- Company, a wholesale meat company initiate a case. A search warrant was exe- financial secrecy is assured by stringent rants for violating the terms of his proba- in Phoenix, Arizona. This business was cuted and hooks and records were seized non-disclosure laws. This financial privacy tion from a 1977 conviction far failing to "shopped" by special agents posing as which showed that the owners had been affords numerous opportunities for the use file income tar returns. Kahl then became purchasers. Duing the meeting between keeping two sets of books for several yean. of vmious illegal schemes and makes the target of a nationwide manhunt. In the undelcover agents and the owners, Sunentino, along with Mario C~lstavam detection and identification of concealed June 1983, Kahl was killed in a shootout. the owners admitted to skimming and rnd Luis Sa, were indicted for skimming income very difficult. A county sheriff was also killed during explained how it was done. As a result, approximately 9750,000 from the business In response to the problems encountered the exchange of gunfire. a case was initiatrd on each co-owner. A receipts. Somentino pled guilty and was hy the IRS in dealing with the increasing search warant was subsequently executed, sentenced to three years in prison, 36 use of tar haven country facilities by tar and records were obtained which reflected months suspended and 33 months proba- evaders, the Criminal Investigation and Business that approximately $300,000 had beer tion. The other two co-ovmers fled the Examination Divisions formed a joint skimmed during a four-year period. In July United States. After two years of being out information gathering project designated Opportunities Project 1986, William and Gladys Jones were of the country, Lnis Sa attempted to enter "Project Tax Haven - Offshore Bank" each sentenced to 36 months probation for the United States at the Mexico border. (THOB). The project was initiated in May This project started from a special agent's violating IRC 7206(1). The U.S. Customs Service recognized him 1983, as a result of the convergence of curiosity about newspaper advertisements and immediately made an arrest. Ile was concern and interen in this area expressed in the "Rusiness Opportunities" section Joseph Sorge mtradited to New Ibrk where he was sen- by the Office of the Secretary of the regarding businesses for sale. tenced to three years in prison and 24 Treasury, the Commissioner of lnternd SOI~Cwa. the owner of a discotheque/ The Business Opportunities Project months probation. Cristovam remained a Revenue, several congressional commit- badrestaurant called "Kingsmen Pub." (BOP) was approved as a local project in fugitive. tcea and the Assistant Cammisfiioners Sorge admitted to the undercover agents June 1977 and was expanded to a national (Clirninal Investigation) and (posing as purchasen) that he was skim- prqlect in January 1981. The objective of (Examination). ming at least $50,000 per yew hmhis the project was to identify and investigate The objective of the project was to iden- business receipts, and he submitted records cases involving businesses offered for sale tify individuals using financial secrecy juris- in which the owner understated taxable dictions to facilitate tax evasion. The project income, usually by "skimming" ~OSS was oriented toward collecting and dissemi- mting domestic and foreign infmmation on

FOR OFFICIAL USE ONLY FOR OFFICIAL USE BMLl users, promoters, banks, and other entities IJnited States thou& nominees who acted Nonfiler Program William A. Batley involved in tax haven countries. as financial representatives for a fee. Jan Jane E. Batley Novus Windshield Repair Co. The project developed raw intelligence Brosnan was paid in excess of $600,000 Taxpayers who fail to file their federal data received from various sources, for his part in smuggling drugs into the income tax returns pose one of the most In March 1993, William A. Batley and his inclutiing confidential informants, and U.S. THOB identified numerous foreign serious problems facing tax administration wife, Jane E. Batley, were sentenced on responded to field inquiries for information bank accounts and other foreign assets today. Service estimates indicate that the violations of failure to file federal income to substantiate allegations. As a result, the owned by the taxpayer and used to conceal government loses billions of dollars each tax returns from 1985 through 1991 project responded to a total of 852 ficld illegal income. Bmnan later pled guilty to year because taxpayers fail to file required involving gross income of almost $12 mil- inquiries and a total of 878 generated failure to file Reports of Foreign Bank and returns and pay the taxes due on those lion. A Seattle, Washington, jury found referrals from intelligence gathered. Financial .4ccounts, in addition to conspir- returns. For individual income taxes, the each defendant guilty of all offenses. District feedback revealed information acy to import marijuana. unpaid tax on returns due hut not timely William A. Batley was sentenced to 14 pmvided by THOB was useful in per- 85 filed for 1992 alone was more than $10 months in prison, a $3,000 fine, followed cent of their investigations. In addition, Offshore Trusts billion. by five years probation, and Jane E. Batley numerous investigations were initiated as a In 1991, the Service adopted a nonfler and his associates main- was sentenced to five years probation, with result of the intelligence gathered and dis- tained offshore bank accounts and trusts. strategy to address this grou

TO. OFFlCILL USE 011" tax returns until 1YC0, after he knew he major firms (4,200 partners) identified sev- of the very criminals who first devised. indicted and charged with the theft of over was under investigation by the Internal eral hundred partners who either had not and operated them, including: the "Yuppie $220 million in federal and state excise Revenue Service. Over the two year filed their returns or were chronic late Don" Michael Franarse, Larry "the Fat lax revenues. Many of those indicted are period, Moore earned more than $1 filers. Many of these partners earned sev- Man" Iorizzo, David Bogatin, Michael reputed to be members of traditional orga- million in total income. eral hundred thousand dollars annually. Markowitz, George Krysing along with over nized criminal elements and the "Russian The publicity surrounding these investi- 70 others. Mafia." In another first, prosecutom, in Criminal Investigation's Role gations generated substantial interest among During the 1990's. the Motor Fuel Excise addition to the traditional tax offense lawyers and C.F!A.'s and their respective Tax Program truly cane of age. During the charges, charged many defendants with During FY 1992 and 1993, Criminal professional associations regarding the 1980's. the majority of our motor fuel cases violations of the Racketeering and Compt Investigation concentrated on investigating extent of nonfiling in their professions. were successfully investigated as "histwical Organization Statutes (RICO), money laun- high impact, high visibility cases, to Most of these investigations are now com- cases" using traditional methods. In 1991, dering, currency violations, extortion, wire achieve greater media attention, maximize pleted and are currently being reviewed. Criminal Investigation began to use under- fraud, and mail fraud. deterrent effect, and generate support cover operations ;n conjunction with more In addition to the cases cited above, for all aspects of the Service's Nonfilrr traditional investigative methds to address many other significant investigations were Initiative. Cl's efforts in identifying and the mutor fuel excise tax evasion pmblem. brought to a successful conclusion during vigorously investigating high quality cases, Motor Fuel Excise Criminal Investigation also sought to maxi- the 1990's resulting in the convictions of: coupled with the couperation from the Tax Program mize our use of resources by enhancing Olcg Yaska, Marat Balagula, Ronnie Public Affairs Office, the Department of cooperation with the Federal Bureau of Messer, Joe Beadles, R.C. Martin, Avy Justice (Tax Division), and the United The Motor Fuel Excise Tax Program was Investigation (FBI), state and local enforce- McQueen, John Barberio, and many others. States Attorneys in prosecuting and publi- instituted to combat sophisticated evasion ment, and regulato~~agencies thmugh uur cizing these important cases, yielded sub- schemes designed to steal federal and participation in nine Joint FederaVState stantial results. CI has emphasized a state excise tax revenues. It is currently Motor Fuel Enforcement Task Forces. continuation of this strategy. Bankruptcy Fraud Program estimated that motor fuel excise tax eva- Throughout 199'2 and 1993, our undrr- During the period FY 1992-FY 1993, sion is responsible far the loss of at least cover operations began to produce results: the average criminal tax deficiency in the The Bankruptcy Fraud Pmgram is the $1 billion annually, revenues that are during seven major enlbrcernent opera- Service's Nonfiler Initiative rose from latest in our long series of specialized urgently needed to i~nproveand maintain tions, agents served search, seizure, and $45,000 to almost $108,000. Further, the enforcen~erlteffmls. The Bankruptcy our transportation systems. ~' mest warrants at hundreds of lo~at1ons Reform Art of 1978 restructured and over- average term of imprisonment rose from 13 In the early 1980's. corrupt fuel dealers nationwide. These operations resulted in hauled the bankruptcy laws and liberal- months to 28.5 months. and retailers joined with members of the seizure of tons of records in addition to izcd debtor's access to bankruptcy relief. traditional organized crime elements and assets valued in excess of 815,000,000 Significant Investigations .Annual filings rase from 300,000 in 1981 the newly emerging "" in which included: millions of gallons of to 944,000 in 1991. The Service is a major elaborate schemes to steal federal and Criminal Investigation's project on leading diesel Fuel and gasoline, cash, marketable creditor in these proceedings, filing hun- state excise tax revenue in the greater New New Yark law firms received national securities, 60 fuel trucks, computers, dreds of thousands of proofs of claim to York mrtmpolitan area. By 1987, ~hese media attention in August 1993. The Wall luxury cars, jewelry, wapons, and an protect billions of dolla~sof revenue. The criminal elements had consolidated their Sweet Joun~aldisclosed that a pmrninent 850,000 barrel capacity fuel barge. goal of the Bankruptcy Fraud Prugram is to control over a substantial portion of the defense lawyer had been retained to During 1993 and continuing through increase voluntary compliance with federal independent fuel market in New York and defend "close to one duaen partners" of Februar)- 1994, evidence,gathered during tax laws by selectively prusecuting persons Lang Island and sought to expand their "large hsin the city." These attorneys thrse operations was used to bring a series who commil tax related crimes in the operations nationwide. were contacted by special agents after an of the largest motor fuel evasion caws in bankruptcy arena. analysis of the partnership returns of 40 Criminal Investigation has aggressively history. Over eighty-six persons were investigated motor fuel excise tax evasion schemes. The 1980's saw the conviction Denver Furniture Moguls Gary and While the scheme devised by the expens befm relevant judicial authorities; Finally, there re now hvo full pups of Marcee Levine (along with their attorneys Levines and their attorneys was simple, activities that, in the past, left CI hrustrated. agents under the IRS Assistant Commis- and ilccountants) were prosecuted for the task of assembling the evidence MLATs have pmved to be very successful sioner (International) that work strictly with Bankruptcy Fraud, Tax Fraud, and Money was extremely difficult. Nineteen bank in helping to neutralize the effect of Swiss international cases. One pupis located Laundering Violations. accounts had to be analyzed due to com- secrecy laws and blocking statutes. in Washington, D.C., and the other is in The law firm of Zimmerman and Schwartz mingling of funds and the use of numerous Also in 1983, the International Mutual Pueno Rico. along with partners, Steve Zimmerman and nominees. Funher, many of the business Assistance in Criminal Matters (IMAC) David Schwartz, Associ?te Attorney Tom records were destroyed and had to be law became effective which allows Crim- Bmwn, C.PA. firn~of William Schwartz reconstructed. inal Investigation to get information in PC., William Schlapman, and his wife, After a complicated trial, the Levines strictly Title 26 cases where neither the Sheni, were indicted in January 1990 in a were convicted on seventeen felony counts issue of narcotics nor organized crimid 52-count indictment involving charges that including: conspiracy, money laundering, activity is present. Gary and Marcee Levine, their accoun- filing false returns, bankruptcy, and mail Criminal Investigation broke major tants, attorneys, and associates were fraud. Their accountants and lawyers were gmund in April 1983, when it established involved in conspiracies to launder hun- convicted on mail fraud, money launder- the Simultaneous Criminal Investigation dreds of thousands of dollars in a bank- ing, and conspiracy charges. Program (SCIP) with Canada. It virtually ruptcy fraud ploy which involved one of eliminated many of the problems that the largest bankruptcy law firms in Denver. Climinal Investigation faced in the past In the early 1980's. it was nearly impos- International Initiatives whereby taxpayers have used the border to sible not to see the Levines on Denver pmvide a degree of immunity from the pro- television. The couple bombarded their 111 recent years, Criminal Investigation has duction of records and the proper reporting viewers with zany commercials which been increasing its activity in an area of of income. SCIP inventory is currently at would feature Marcee hvine blaming enforcement that holds unlimited potential its all-time high and has firmly established Gary for some bone head business deci- for the future; namely, the international itself as the premier and most visihle rev- sion in which he would discount sofas workplace. enue compliance program that the United below cost. In addition to its agenls working mutinely States has with Canada. In 1985, the hvines' furniture empire through tax treaties the United States has Criminal Investigation also has Simulta- collapsed, and their business was liqui- with 37 countries, CI is making significant neous Criminal Investigation Pmgrams dated. A th~e-~earinvestigation disclosed imdsagainst Title 31 violators, narcotics with Italy and France. that the Levines conspired with their attor- traffickers, and other organized ccrime figurer Another area in which Criminal Investi- neys and CIA., to establish secret trust and organizations, by tapping into the newq gation has moved dramatically forward in accounts thmugh which they could funnel more effective Mutual Legal Assistance international matters is in its commitment hundnds of thousands of dollam, siphoned Treaties (MLATs). The United States has of resources. In addition to the stalling off fmm their corporation duing liquidation. MLAT's with Switzerland, Turkey, the committed to SCIP matters, it has an a@ Over $400,000 was divefled into these Netherlands, and Idy. The MLAT's have assigned la the headquartets of Interpol accounts. afforded Criminal Investigation the opplrtu- (the lntemtiond Police Organization) in nity to get information, locate persons, and St. Cloud, France, and a second agent require the appearance of witnesses or assigned to Interplat the National Central Bureau in Washington. D.C.

ron OFFICIAL USE ONLY FOR OFFICIAL USE ONLY 191 j INVESTIGATIVE strike furces that evolved from the Organ- I oped undercover techniques to combat this During FY 1983, the LRS issued new ! guidelines for undercover activities modeled TOOLS AND ized Crime Drive. serious threat to the revenue. A new tech- . .. after the pposed Senate Bill 5.804 and the Examples of early undercover operations 1 nque ut~lrzmgfew contacts was developed. i A,torney General's guidelines. The chart TECHNIOUES include the Las Vegas Project that resulted i The purpose was to "sting" the illegal in additional tax and penalties recom- operation to secure evidence of its illegal below shows the number of appmved under- cover operations since that time, by year. mended against three casinos in the 4 activities md, it was oriented toward imme- 1 amount of $8 million. During the late diate results. Approved Undercover Operations Undercover Activities 1%0's, Climinal Investigation initiated With the advent of the money laundering the Courier bject to attempt to corrobo- 1 provisions, a substantial portion of the i Approved The Criminal Investigation function has rate persistent allegations concerning the undercover operations became fmused in .; Fiscal Undercover movement of casino receipts by couriers to Mafia" used the undercover technique throughout this area. The "Grandma case in Year Operations our history. It is well documented that offshore tax havens. There also was a con- 1 California is a prime example ofthis type d 1981 215 undercover played a significant role in the tinuing interest in the infiltration of urga- j undercover operation. Three women began famous case of public enemy Na.1.. Al nizrd crime into the casinos through the j to launder the profits for various nar- Capone. However, the real impetus for use of nominees. I cotics traffickers and sought the help of a undercover began during the early years of The undercover technique was almost local bank. The banking official contacted the Kennedy Administration with the fore- exclusively directed toward organized the IRS which in turn set up a storefront to wnner of the Strike Force--the Organized crime targets through the mid-to-late launder their funds. Prior to their arrest, the Crime Drive. The Intelligence Division 1970's. Also, during these early years, the i three women brought over $20 million in was given the mandate to participate with activities were almost exclusively for intcl- : narcotics traffickers' funds to undercover other federal agencies to bring the full ligence gathering and were long-term (one : IRS special agents to be laundered. The force of the law to bear on organized to two years and beyond). "Grandma Mafia" was the subject of a crime. As we found out with Capone, a During the late 1970's, the undercover i major television network news special. very effective way to do this was to use the program was decentralized. Although the During the early years of our undercover undercover technique. National Office retained review, approval, few agents pssessed the skills to The undercover program was centralized funding and training authority, the regions , utilize this technique. Tday almost 2W Currently CI has over 100 active under- in the National Office in 1963. At that and districts became responsible for the agents are trained in this technique. cover agents and has trained almost 200 time, all undercorer operations were tun initiation and day-to-day management of They are encountering many unusual and for undercover "shopping" of preparer from the National Office and would Ire- the operations. challenging situations in their roles. One schemes. quently encompass more than one district. During the late 1970's. the Service agent spent nearly two years in the Fulton The main focus was in the area of wagrr- identified a noncompliance area that wlts Fish Market in New York. Another was ing and orgnnired crime. The objective eventually tilled thr Underground Econom): accepted as a member of some of the most CI Forensic Laboratory was not only to punue designated targets. Because of their nature, these individuals violent tax protest pups in the country. empluyed the use of offshore banking wd One agent was stabbed repeatedly with an It was equally important to gain intelli- The IRS Criminal Investigation National bartering and quite often became tax pm- gence and an understanding and knowl- ice pick while investigating a tax Forensic Laboratory, located in Chicago, teslers. At the metime, illegal LU shelters shelterlmoney laundering scheme, and yet edge of the groups and syndicates who Illinois, provides analytical services and wew becoming more and mure popular. The were masterminding these various illegal another was offered 810,000 to murder the expert testimony to assist special agents estimated revenue loss was app~uximately wife done uf the targets! Some of the agenlb activities. The intelligence and knowledge throughout the country. The lab was under $85 billion in 1981 and had increased to gained from these operations were the key have been so well accepted in their roles IRS Alcohol, Tobacco and Firearms, until $120 billion by 1985. The Service devrl- that the targets refused to believe they were ingredients in our participation in the ATF became a separate agency in 1972. IRS agents, even after the targets' arrests. Since those days as the Questioned

FOR OFFICIAL USE ONLY

this review was to develop Service guide- to criminal matters. Grand jury information badge company. These badges, in a sunburst TRAINING lines consistent with disclosure laws and could seldom be used lo assess or collect design, had a large "U.S." in the center and Rule 6(e). taxes. contained the inscription, "Special Agent, Since 1927, the enforcement services These grand jury guidelines were incur- The relationship of the Service and fed- US. Trcasuly, Intelligence." of the Treasury Department have joined prated into the Internal Revenue Manual eral grand juries has been in the past, and In 1954, new badges were issued by together and operated a combined training and provided procedural steps for quest- remains, a sensitive issue. The 1984 IRS. The badges had the familiar sunburst school covering the principles of criminal ing Service involvement in gand juries as Supreme Court decision of Baggatt, which design of the previous "unofficial" badges. law and basic investigative techniques. well as when a gMnd july was necessary held that grand jury informatiun may not "Internal Revenue Service" and a badge In 1937, specialized training for 1RS spe- and appropriate as an alternative to the pre- be used for civil tax purposes, conhed number were added to the inscription. At cial agents of the Intelligence Unit consisted femd administrative process, that is, when: the Service's dilemma of assisting gand first, badges were issued only to special of an ouheuf instructions and correspon- 1. It is apparent that the administrative juries in their investigation of internal agents working organized crime or wager- dence training comes covering accounting, process cannot develop the relevant revenue violations and the prohibition of ing cases and those working cases involv- income tax laws, evidence, commercial facts within a reasonable period uf the use of this information for assessing ing "illiterates." Other agents again had law, and other areas. New agents were also time, or and collecting civil tax liabilities. to pool their badges until 1955, when a assigned to work with one of the experi- 2. Coordination of the tax investigation Close monitoring of court decisions and badge was provided to each special agent. enced agents for an intensive training perid with an ongoing grand jury investiga- criminal investigations became ever more Starting in 1965, special agents were of 6 weeks or less. At the end of the training tion would be more efficient; and important by Service management to deter- required to carry their badges pinned la period the new special agent received 3. The case has significant deterrent mine the drgee of future IRS grand jury the outside of standard credential cases. assignments and continued training by tak- votenlial. involvement. This was imposed, "to provide positive ing correspondence comes which were identification of special agents as law completed outside of duty hours. The guidelines mandated approval by enforcement officers in their dealings with In 1955, the Personnel and Training high-level Service executives and a legal taxpayen." This requirement increased Division distributed a "Criminal Investi- review of the request hefore IRS resources Criminal lnvestigation Badge the complaints received about the sharp gation Procedures Course" through the could be committed to a grand jury investi- Although the Special Intelligence Unit was edges of the sunburst badges tearing holes Assistant Regional Commissioner (Admin- gation. Due to the Service's dual civillcrimi- istration), This coume consisted of ten formed in 1919, its agents were not given in coat linings and trouser packets. llal enforcement rule, many issues had to texts and quizzes covering the probable badges until 1923. At that time, special In 1969, special agents were issued be considered by approving officials. This cause, evidence, search warrants, searches agents were issued a finely detailed gold- redesigned badges. The badges were in the included the propriety of suspending an without wmants, conspiracy, miscella- plated circular shield designed by the shape of a shield, had smooth edges and independent civil audit pending the conclu- neous U.S. Mint. The shield bore the seal of the fit into leather badge-credential holders. law, mles of criminal pmcedure, sion of a grand jury investigation and the iniormants, and techniques for searching President and contained the inscription, The badge was again redesigned in unlikelihood of obtaining a coun order, sub- placer. "Special Agmt, US. Internal Revenue." 1978 concurrent with the organizational sequent to the pndjuly investigation, Formal specialized classroom training The gold-plated finish was costly and wore uame change to Criminal Investigation allowing the Service to utilize the informa- for IRS special agents did not begin until off quickly, so the badges were issued in Division. The new shields were issued in tion developed for civil purposes. These silver plate beginning in 1939. 1980 and are "lifetime" badges, that is, May 1960, when the fust Special Agent were impartant considerations because, once Basic Schd (SABS) was held in Wash- The tremendous expansion of the intelli- the badge is kept until the agent leaves committed, Service personnel assigned to a ington, D.C. This was followed by the fust gence Unit after World War I1 resulted in a the IRS or changes j~bseries. grand jury acted as assistants to an attorney shortage of badges. This often required spe- Basic Income Tax Law Course (BITLC) in for the government and were bound by strict cial agents to pol their badges and check August 1964. grand jury secrecy provisions. Thus, absent From 1960 until 1976 most special them out to make msts or conduct surveil- a coult order, Service access to data dew- agents received their training in income lance. In 1949, special agents began buying oped in the grand jwy was generally limited tax law and investigative techniques in their awn badges fmrn a large New York

FOR OFFICIAL USE 011'1 either Washington, D.C., or at the National Computer specialist training was also back to the Criminal Investigation function. ing material. Fow module8 of training were Training Center in Crystal City, Arlington, initiated for special agents in 1977. In June 1990. the fint Criminal Investi- developed: Innovative Financial Techniques, Virginia. National Office analysts, course In October 19'77, training for IRS special gation Gmiculum Review Conference was Money LaunderingiAsset Forfeiture, %arch developer instructors, and special agents agents came under the conml of the held at Glynco. The major recommenda- Wa1~8nts/Searchand Seizure, and Under- on detail sewed as the course instructors. Training and Development Division when tions fmm this conference, appmved by the cover Operations. 'Ibis enme was piloted Revenue agents were also occasionally the Criminal Investigation Training Section hsistant Commissioner (Criminal at the Federal Law Enforcement Training detailed to assist a8 instructors in BITLC. was created in Crystal City. This section was Investigation), included combining Tax Center (FLETC) in Januq, 1994, and is In the fall of 1975, thC Federal Law responsible for all Criminal Investigation for Criminal Investigation (TAX-CI) and an available training pmgram ofiered to Enforcement Training Center in Glynco, course development and the staff detailed to Special Agent Investigative Techniques qualified and interested special agents. Georgia, opened and the formal classroom Glynco. TIE section sa8 staffed by special (SAIV into one schwl, Special Agent In Octoher 1993, other changes were training for IRS special agents was trans- agent course developer-instructors and Basic Training (SABT); commencement made to the training function because of ferred from Washington, D.C., to Glynco in employee development specialists. of training irmnediately upon entrance on the National Office reorganization. first, early 1976. After this transfer, all of the In 1978, the Criminal Investigation duty as a special agent; and a formal grad- the name was changed from the Training classroom instruction was done by detailed Training Operation Section was created uation ceremony at the conclusion of SABT, Branch to National Training Division. special agents. Since IRS had no perma- at Glynco and detailed instructors were with presentation of enforcement badges by Responsibility for certain programs that nent representative at Glyneo, National replaced with permanent resident lead the Assistant Commissioner (Criminal had been managed in Wahjngton, D.C., Office analysts and course developer- instructors. This move improved both the Investigation). was transferred to Glpco. These programs instructors from Crystal City were also quality and consistency of the special In early 1991, two team leader supervi- included National Firearms Coordination, detailed to Glynco to coordinate and agent classroom training. Course develop- soly positions were created, meresponsible Physical Fitness Coordination, and instruct Criminal investigation classes. ment activities continued to he done by for training delive~y,the other responsible Management Training (Entv Level, and Late in 1976, the Deputy Commissioner the Criminal Investigation Training Section for training development. A third team Mimop Level). Also, the Defensive appointed a study group of IRS managerial in Crystal City. leader position was added in early 1992, Tictics Coordinator is now laeated at the personnel to ensure that special agents In 1980, a new emphasis was placed an and given responsibility for advanced com- National Training Division in Glynco. were properly trained in criminal inves- Continuing Professional Education (CPE) puter training matters. In October 1992, tigative techniques and that the training to provide special agents with additional the position title of team leader was was being done in a cost-efiemive manner. training to ensure that they were kept up- changed to section chief. Major recommendations of the study to-date on the latest law and pmcedures. In 1992 and 1993, the training branch, pupwere adopted and a revised special In the past, except for a few instances, the in conjunction with the field, developed a agent training pmgram was implemented training of special agents beyond the basic use of force training program that all spe- during 197'7. level had frequently been relegated to a cial agents completed, via mandatory CPE, The study group also recommended that secondary status, in times during EY 1994. This extensively Intelligence Division employees receive of budgetary constraints. The Criminal researched, state of the art training pm- advanced training for certain specialized Investigation Training Section in Crystal gram will prepare special agents to react duties. The first of these courses was City was responsible for this program. properly in canftonlational and other "large Case Training'' to enable agents to In 1985, Criminal Investigation's two situations where force may he necessary. conduct investigations of Coordinated training sections were consolidated at An Advanced Special Agent Training Examination Program cases. This course Glynco. And these sections became the (ASAT) course was also developed in 1992 consisted of studies on case analysis and Criminal Investigation Training Branch in and 1993. Subjccts of interest to the held planning, corporate structure, grand juries. 1986 when the responsibility for Criminal were identified, and then special agents referrals, and information. It was given to Investigation training was hmsfemed from with expertise in those areas were bmught approximately 2M) special agents in 1978. the Tmining and Development Division together in taqk fnrres to develop the train-

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Statistical Data Enrolled Attorneys Mirc, Prose~ution and Agents The following statistics reflect results of intelligence Division/ yearFiscal Ended lnvesfigationsax Fraud Recommended A~vlications Charges I"". Criminal Investigation Division activities. 85 24 Summan/ of Investigations 6-30-55 4,231 1.956 5.726 42 July 1.1936 - September 30, 1993 6.30~56 4.650 2,253 4.522 NIA 8.081 60 82 Chargsr Enrolled Anomeys 7,241 Fiscal Tax Involving and Agents IlIMiscellsneous 51 Year Ended Fraud 7.160 Perronnel Applications Charges lnvestigations Ill (11 6-30-37 884 126 3.934 84 3.751 6-30-38 830 NIA N IA 145 3,988 85 3.429 6-30~39 987 NIA NIA lo7 3,624 92 2.143 NIA NIA 104 2,845 79 1.050 NIA NIA 87 2.411 57 7.535 NIA NIA 114 2.696 76 13,581 N /A NIA 95 2.404 75 5.688 NIA NIA 84 2,863 42 133 84 2.699 34 45 (1) This iunction was ari~~medbi Inspection Senice dunny: fiscal year '60 85 2.693 23 42 95 5,079 37 41 73 5,560 32 44 75 4.793 32 40 81 5.668 38 26 77 4,885 31 50 284 NIA NIA NIA 361 NIA NIA NIA 131 6.946 117 NIA

11) Ineludes inverhgations of employee appbcants of the Bureait af Internal Revenue until Lcd year '411. (2)Includes wagering tax investigatians. (3) This functlon wss assumed by Inspection Service dunne fiscal year.52.

FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY Fiscal lnvestigationa Pmsacution lndicbnents & Told Yaar Ended Completed Recommended Information - Convictions 1,620 756 1.139 561 1,118 521 1.379 787 1.795 846 2.555 1,104 2.454 1.253 2.760 1,219 3.147 1193 3.408 1,476 3.439 1,414 3.338 1,611 2.267 1,601 1.978 1.494 2,297 1.624 2.610 1.492 2,990 1,808 3,234 2.025 3,524 2,460 3.526 2.556 3.044 2,491 3.242 2,282 3.228 2,472 3,677 2.91 1 4.252 2,950 4.266 3.216

(1) The fiscal yearwas changed fmm July 1 lhrnugh June 30 tn October 1 thmugh September 30.

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