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