Part 7

He found that Customs clerks were being paid from $1800 to $3000 per annum but that the salaries were not particularly attractive in a city gripped by the get-rich-quick fever. Flour was selling for $40 per barrel and pork for $60. Board was $5 a day and a room with a single bed was $150 a month. Wood was $40 a cord and prices for other necessities were equally shocking to a man as obviously thrifty as Collier.

Collier moved into the Old Spanish Custom House to set up shop. It was a dark and gloomy building. The roof leaked. Some of the doors were off the hinges. There was no vault in which to place the money he collected. He confided to the Secretary that “owing to the rates for rents, I am afraid to lease a building. One for myself, containing four rooms, two below and two above, without fireplaces, was offered to me on yesterday at $2400 a month....”

He continued: “To enforce the revenue laws in this district, and to cut up and prevent smuggling, which has been and is now carried on to a great extent, it seems to be necessary that an additional cutter should be sent out or that the _Ewing_, now in this port, should be assigned to that duty.”

In a later letter to the Secretary, Collier wrote: “... San Francisco ... must become to the nation what New York is to the Atlantic.... It is impossible to estimate the extent to which her commerce may reach. It is now large and it will be constantly on the increase. These facts are stated for the double purpose of putting you in position of what may be anticipated from duties, and of impressing upon Congress the necessity of doing something--doing much for California, and that without delay. The responsibilities that rest upon the Collector, in the absence of any legal tribunal, any legal adviser, to which he might resort for redress or advice weigh heavily upon me.”

The troubles experienced by Collier and other early-day collectors along the borders of the growing nation were soon to be submerged in the conflict between the states. At the outbreak of the Civil War most Southern Customs officers simply resigned and accepted appointments to similar posts in the Confederate government.

President Lincoln ordered a blockade of the South on April 19, 1861. At that time the United States naval fleet consisted of only 42 ships carrying some 555 guns. Of this total many were tenders and store ships and among them were old fashioned sailing ships and frigates. For a time, business went on as usual in the Southern ports.

Many in the South laughed at the idea of a blockade. One Southerner in a letter from Charleston, South Carolina, printed in the New York _Illustrated News_ on June 15, 1861, said:

We are now in the enjoyment of a very pleasant spring, and are now as quiet as a brood of chicks under the parent’s wing. For all that, however, our head men are not asleep. Everything is going nicely. You have heard, no doubt, old Abe has blockaded our port.

A nice blockade indeed. On the second day a British ship, the _A & A_ ran the gauntlet and got in safe. She leaves in a few days with a snug freight of $30,000. Today two vessels passed safely in, both British, I understand. A captain told me that one of them can carry more cotton than the _A & A_ and that she is engaged at 5¢ a pound, which will give a freight of $35,000 to $40,000....

Under the guns of Admiral Farragut and the troops of General Butler, New Orleans remained securely in the hands of the Northern forces, shutting off this port to the Southern cause. After a short while Galveston fell to the Union and the flow of cotton and smuggled goods from this area was sharply reduced.

In England, the Liverpool firm represented by Thomas E. Taylor owned some fifteen ships which were engaged in blockade running. Among Taylor’s swiftest and most elusive runners was a steel vessel called the _Banshee_, one of the first--if not the first--ship built for the express purpose of evading the Union blockade for the Southern ports. Nassau, in the Bahamas, was the primary staging point where the blockade runners fueled and stocked for the run to the American coast.

The blockade had been underway for two years when Taylor brought the _Banshee_ into Nassau. Workers removed everything aloft except the two lower masts, and the ship was painted an off shade of white which the blockade runners had found made their ships almost invisible at night, even from a distance of only a few yards.

Moving cautiously out of Nassau, the _Banshee_ sailed along the Bahama shores and then began the run toward Charleston. From a crosstree in the masts, a lookout was rewarded with a dollar each time he sighted a sail on the horizon before it was seen from the deck. If someone on the deck spotted the sail first, then the lookout was fined five dollars. It was a system that encouraged alertness by the lookouts. As soon as a ship was sighted, the _Banshee_ turned its stern to the stranger and waited quietly until the vessel was out of sight.

On the fourth day the _Banshee_ reached the American coast some fifteen miles north of Cape Fear and the mouth of the Charleston River. When darkness came she began easing cautiously toward the blockading Union ships, running as close to the pounding surf as the skipper dared. No lights were permitted, not even the glow of a lighted cigar. Tarpaulins covered the engine-room hatchways. And the _Banshee_ was a gray ghost slipping silently through the water while the men aboard talked only in whispers. Occasionally the ship stopped for a seaman to take soundings.

Taylor later recalled one tense moment in these words: “... Suddenly Burruss (the pilot) gripped my arm--‘There is one of them, Mr. Taylor, on the starboard bow.’... A moment afterwards I could make out a long, low, black object on our starboard side, lying perfectly still. Would she see us? That was the question: but no, though we passed within a hundred yards of her, we were not discovered and I breathed again. ‘Steamer on the port bow,’ and another cruiser was made out close to us. Still unobserved, we crept quietly along, when all at once a third cruiser shaped herself out of the gloom straight ahead and steaming slowly across our bow.

“Burruss was now of the opinion that we must be inside the squadron and advocated making the land. So ‘ahead slow’ we went again, until the low-lying coast and the surf line became dimly visible.... It was a big relief when we suddenly heard Burruss saying, ‘It’s all right, I see the big hill!’...”

The Big Hill was near the Confederate-held Fort Fisher at the mouth of the Charleston River. As dawn came, the _Banshee_ was sighted by the Union blockaders and they moved against her with guns blazing. But then the _Banshee_ slipped under the protecting guns of Fort Fisher and safety.

The owners of the _Banshee_ made 700 per cent on their investment before the ship was captured on her ninth round trip between Nassau and Charleston.

The blockade runners, British and Confederate, supplied the armies of Gen. Robert E. Lee with desperately needed arms, clothing and food supplies in the early years of the war. For a time the blockade appeared impotent, while Southern privateers harassed the shipping of the North and captured much booty at sea.

While Lee was winning battles on the land, the Confederates could never gain mastery of the sea. The Union blockade could not be broken, and slowly the superior sea forces of the North strangled the commerce of the South, shutting off her armies from vital sources of supplies overseas.

Soon after the war began, it became evident to President Lincoln, to his Cabinet, and to members of Congress that the revenues collected by the Customs Service were not enough to finance the mounting costs of the massive conflict. The loss of tariff revenues in the Southern states, the South’s raids on the shipping of the North, and the breakdown of normal commerce had reduced Treasury receipts drastically. The President was forced to seek new sources of revenue.

In this emergency, the administration turned for the first time to an income tax. Congress passed a law imposing a tax of 3 per cent on incomes between $600 and $10,000, and a tax of 5 per cent on incomes above $10,000. Later, the taxes on those two income brackets were raised to 5 per cent and 10 per cent.

The income tax collected throughout the struggle--and until the law expired in 1872--helped carry the nation through its money crisis. Then the collection of duties by the Customs Service once more became the country’s primary source of revenue.

But during most of the war and for many years afterward, the venerable Customs Service’s cloak of respectability was at best a tattered and stained garment. It had become, particularly in New York City, the symbol of the political spoils system which had been encouraged by that partisan old fighter, Andrew Jackson.

The office of the Collector of Customs at the Port of New York had become a prize second only in political prestige and influence to a Cabinet appointment. The man receiving this office was in a position to dole out lucrative jobs to hundreds of the party faithful, to collect tribute for his party’s campaign chest, and to use his influence in shaping the affairs of his city, county and state. To a lesser degree, the same situation existed across the country.

Under such blatantly political management, it was hardly surprising that the Customs Service in New York should become the target of bitter charges of graft and corruption. The charges became so loud and persistent in 1863 that the administration ordered an investigation into the management of the New York Customs House.

A report from the Treasury’s solicitor said in part: “As to the accessibility of many of those employed in the Customhouse to corrupt influences, the evidence is conclusive and startling.... The statements herewith submitted seem to justify the belief that the entire body of subordinate officers, in and about the Customhouse, in one way or another, are in habitual receipt of emoluments from importers or their agents.... It is shown that a bond clerk, with a salary of $1,000 per annum, enters upon a term of eight years with nothing, and leaves it with a fortune of $30,000....”

Until Congress slammed the door on such practices in a reform move generated in the 1870s, Customs officers were legally permitted to receive half of any fines and forfeitures resulting from the seizure of imports which had been undervalued or underweighed by an importer, even though the methods of determining dutiable value were complicated and subject to dispute.

However, the law encouraged collectors, appraisers and inspectors to seek out discrepancies in values and weights and to give themselves the benefit of any doubt. In one case, the great Phelps, Dodge & Co., metal importers, was charged with an attempt to evade duties by undervaluing a shipment worth $1,750,000.

The company’s attorneys argued in vain that there had been no attempt to defraud the government; that if a mistake had been made it was an honest error, and that even with the benefit of a doubt, the most that the government could fairly claim in unpaid duties was $1,600.

With the entire shipment subject to forfeiture, the company finally agreed to settle for $271,017.23--50 per cent of which was divided among the Customs officers. Records of the time showed that one of the Customs officials who received an award of $56,120 was Chester A. Arthur, who later would become President of the United States.

Arthur was active for years in Republican politics in New York City, working his way up through the ranks until he became a member of the New York State Republican Executive Committee. He was rewarded for his labors in 1871 with an appointment as Collector of Customs in New York City.

Under Arthur, the Customs House became the center of such open and partisan political activity that it eventually led to conflict between Arthur and President Rutherford B. Hayes. Hayes championed a strong civil service with appointment of Federal employees on a basis of merit rather than political allegiance. The President asked Arthur to resign, and when he refused Hayes removed him from office in 1879.

But this Presidential rebuke by no means dimmed Arthur’s political star. Two years after his removal, he was elected Vice President of the United States, running with James A. Garfield. Garfield was fatally wounded by a disgruntled office-seeker, Charles J. Guiteau, only four months after his inauguration. He died on September 19, 1881, and Arthur took the oath as President. Ironically, once he was in the White House, Arthur became a supporter of a stronger civil service.

Reforms came slowly to the Customs Service in the years that followed the Civil War. But they came, spurred by the efforts of Hayes and then of President Grover Cleveland to establish a civil service and to break up a spoils system in which the “rascals” were thrown out of their jobs with every change in administration.

The demands for further Customs Service reforms were particularly loud in the early years of the twentieth century. One of these resulted in the formation in 1909 of the Customs Court of Appeals, to bring uniformity to the legal decisions governing the huge import trade and to speed up the hearing of Customs cases.

From the earliest days of the Republic, disputes over the appraising of imports had been carried to the U.S. Circuit Courts. The result was a continual conflict in judicial opinions which left importers and Customs officers confused. In 1908, the Secretary of the Treasury reported that the law had made “each of at least 120 judges a possible final judge of Customs appeals, a condition which experience has demonstrated will inevitably result in numerous irreconcilable conflicts of authority.”

In addition to the legal conflicts, the U.S. Circuit Courts had become jammed with Customs cases. It was not unusual for importers to have to wait almost five years to get a judicial settlement of their cases. But the creation of the Customs Court of Appeals by the 1909 Tariff Act removed most of the inequities and brought order out of the judicial chaos.

In this period, the reformers also centered their attention on the system which had permitted pork-barrel legislators to have their towns and cities designated as ports of entry with almost total disregard of the need for such services.

At Saco, Maine, the port’s receipts for fiscal 1910 amounted to $15, while expenses totalled $662--a cost of more than $41 to collect $1. At St. Mary’s, Georgia, the cost of collecting $1 in duties was more than $45. At Annapolis, Maryland, the government paid $309 to collect $3.09. And there were dozens of similar examples throughout the country. The major function of many ports of entry, it was evident, was to give jobs to the workers in the political vineyard.

Congressional investigators also found that the system of paying collectors, surveyors and other Customs officials was a fiscal nightmare--in which thirty-five different methods were used for compensating employees. For example, collectors along the Canadian border were permitted to charge ten cents for each entry blank they executed. Some of them were pocketing, legally, as much as $17,000 a year.

In 1912, Congress authorized the President to overhaul the Customs operation. The day before he stepped out of office, President William Howard Taft issued an executive order establishing 49 Customs districts to replace the existing 126 districts and 36 independent ports. Collectors were placed on a salary basis. Many of the political appointees were dropped from the government payroll.

It was during the early years in this century, too, that the Customs Service relinquished to the Internal Revenue Service its role as the prime collector of revenue in the Federal government.

This change was foreshadowed on December 19, 1907, when a tall, gangling Democratic Congressman from Tennessee arose from his seat in the House of Representatives in Washington, D. C., and called for the attention of Speaker Joe Cannon, the thin, wiry political leader who ruled the House with iron-fisted discipline.

“The gentleman from Tennessee is recognized,” the Speaker intoned dryly.

Then it was that Cordell Hull, a freshman Representative from the foothills of the Cumberland mountains, boldly introduced a bill calling for a Federal tax on all incomes. He long had felt that tariff duties bore too heavily on the consumers of the country and that the wealthy were not paying a fair share of the cost of their government.

Bold though it was, the Tennessean’s move created scarcely a ripple in the capital. The House droned on with its business. The newspapers hardly made mention of the bill or of the new Congressman. It was as though a rock had been tossed into a lonely mountain pool to sink rapidly from sight, leaving no trace after the first plop on the quiet surface.

But Cordell Hull’s action on that cold December day marked the beginning of a long and bitter fight which would end six years later with an amendment to the Constitution authorizing Congress to enact an income tax law. With the passage of this law, the Customs Service became a secondary producer of Federal revenue.

The reforms of these years, together with those which came in the Tariff Act of 1922, established Customs on its present base. It was a leaner and more efficient service which shouldered the increased burdens imposed by the outbreak of World War I.

During the war years, the Customs Service was responsible for the enforcement of the neutrality laws in shipping. Its officers acted also as local agents for the Bureau of War Risk Insurance, insuring vessels, cargoes and seamen against the hazards of war at sea.

When the United States entered the war on April 6, 1917, Customs agents moved quickly to seize seventy-nine German and Austrian ships in American ports. Customs officers enforced the import and export licenses issued by the War Trade Board.

Two years after the Armistice in 1918, the country was swept by the nostalgic longing for a “return to normalcy”--and Warren G. Harding was installed in the White House. But there was nothing normal about the 1920s for the Customs Service. Its agents were to become involved in fighting the greatest wave of smuggling the nation had known since the days of Jean Laffite.

6

BOOZE AND BRIBES

Lawrence Fleishman had gone to sea at the age of sixteen, when most youths his age hadn’t yet put on long pants. He had enlisted in the Navy and served in convoy duty on the Atlantic in the final months of World War I. When the armistice was signed between the Allies and Germany, he had decided to remain in the Navy and he had achieved the rating of Chief Petty Officer. Still, he had no desire to spend the rest of his life at sea. When the opportunity had come, he had applied for a job with the Customs Service. He had been accepted after passing the Civil Service examinations.

Sodus Point had seemed a quiet enough haven. It was a resort center and coal shipping port on Lake Ontario, only a few miles removed from Rochester. The people were friendly and the work was pleasant. He had expected to remain for some time undisturbed, getting accustomed to the idea that his roving days were over.

Then an official-looking letter had arrived--marked “Confidential”--and within a few hours Fleishman was enroute to New York City under orders to tell no one of his destination. He was to report to Customs Agent Gregory O’Keefe in Room 501 at the Prince George Hotel.

Fleishman checked into his room at the hotel and then called O’Keefe. “Come to my room as soon as you can,” O’Keefe said. “We’re waiting for you.”

When Fleishman went to the room, he was introduced by O’Keefe to a deputy collector of customs and to another young employee named Frank Gallagher.

“We called you two down here,” O’Keefe said, “because you are new in the Service and no one around here knows you--not even the Customs people.”

O’Keefe explained that the Customs Service was under fire in Congress. Rep. Fiorello La Guardia had charged that the Port of New York was so “wide open” that a circus could be smuggled past Customs officers and New York City port authorities. He claimed that bribery and corruption were rampant in the administration of the debonair Mayor “Jimmy” Walker, and that illicit whiskey was pouring into the city. He demanded that something be done about a scandalous situation.

La Guardia’s charges had stirred Secretary of the Treasury Andrew W. Mellon to order an immediate inquiry. Customs officials had denied that conditions were as bad as La Guardia said they were. Nevertheless O’Keefe was directed by his superiors to undertake an investigation.

Fleishman got the impression in this meeting that the Customs people honestly believed that an investigation would clear the Service’s skirts and prove La Guardia to be wrong. Many apparently felt that the accusations were based more on political inspiration than on facts.

O’Keefe said, “You two are being assigned to the Special Agency Service. Everything is arranged for you to report for duty day after tomorrow as Customs guards on the North River piers. When you get your uniforms, badges, buttons and insignia, I’ll give you more specific instructions.”

Fleishman and Gallagher were assigned to work as partners on the piers handling the cargoes of the trans-Atlantic liners. In less than a week each was accepted as “one of the boys” and they listened to Customs guards, inspectors, stevedores, seamen and other waterfront employees openly discussing their success in smuggling liquor and other merchandise from incoming ships. The standard pay-off for permitting a case of whiskey to cross the pier unmolested was $1 per bottle.

They sat in on smuggling plans and watched the pay-offs being made. They accepted their share of the money--and then met in secrecy to mark the bills to be used as evidence in court. In only eighteen working days these two alone had gathered evidence of corruption involving twenty-three Customs and city waterfront employees.

Instead of proving La Guardia wrong, they found that his charges only touched the surface of a serious breakdown in law enforcement. They found that many waterfront workers were merely the tools of the mobsters. Whiskey smuggling was big business and the pay-offs were tempting to government employees whose average pay in the 1920s was less than $100 a month. Customs inspectors were earning only $4 a day and pier guards $75 a month. The Bureau of Labor Statistics had reported that the minimum salary on which a family could live decently was $2,260 a year--or $1,124 more than the average government wage. Forty per cent of the Customs employees in New York worked at night at whatever they could find to supplement their pay. The conditions were ripe for corrupting influences to flourish.