666 



PUBLIC DOCUMENTS. 



at once details a ganger to examine and regauge the 

 spirits. It is this ganger's duty, also, to see the 

 packages emptied and the stamps destroyed ; and to 

 certify the fact on the face of the rectifier's notice. 

 An account is opened with each rectifier, in which 

 he is credited with the total proof-gallons of spirits 

 so dumped, and charged with the total proof gallons 

 covered by rectifiers' stamps placed on spirits 

 gauged out of his establishment. The collector is 

 not allowed to issue rectifiers' stamps for a number 

 of proof-gallons in excess of the number reported as 

 dumped by the rectifier and gauger, as above indi- 

 cated. 



It is thus apparent that, if all officers were honest, 

 the above-described checks would effectually pre- 

 vent any spirits being sold in the market that had 

 not paid the proper tax. 



2. To perpetrate fraud, the distiller must first 

 obtain the consent of the storekeeper to use more 

 grain than his survey calls for. It has been proved 

 by experience that a fermentation that will produce 

 the largest yield of spirits from grain cannot be made 

 in less than forty-eight hours. The regulations, 

 therefore, allow this time for fermentation, and for- 

 bid more than one filling of the tubs in seventy-two 

 hours, thus requiring the tub to remain empty for 

 twenty-four hours. If, however, the distiller will 

 prepare what is known as " quick-yeast," he is en- 

 abled to complete a fermentation in twenty-four 

 hours, or less time, though with a loss of yield in 

 spirits. This he can well afford, if he can sell half 

 his product without tax. Having gained the consent 

 of the storekeeper, who keeps his books as if the 

 law were being complied with, the distiller makes 

 two fermentations where one is allowed, and then has 

 nearly double the quantity of spirits that the books 

 show was produced. The distiller who has this 

 illicit product on hand does not dare place it upon 

 the market in the only way possible, that is, by the 

 reuse of stamps, since the detection of a single 

 package so duplicated would subject him to the 

 severe penalties of the law. He must, therefore, 

 call to his assistance the rectifier, who, even if de- 

 tected, is dealt with much more leniently by the 

 law, while the difficulties in detecting him are much 

 greater than with the distiller. 



To make the transfer of the illicit spirits from the 

 distillery to the rectifying-house, the gauger in 

 charge of the cistern-room must either permit bar- 

 rels to be filled and surreptitiously removed without 

 stamps, or he must affix stamps which have been 

 once used. If the spirits were removed to the recti- 

 fying-house without stamps, no notice of rectifica- 

 tion describing the same could be sent to the col- 

 lector, and therefore no credit could be had by which 

 to obtain rectifiers' stamps. 



Two methods of placing illicit spirits upon the 

 market have been in vogue : 



1. The first was made possible by the fact that 

 rectifiers' stamps have heretofore been so prepared 

 that each stamp could protect any number of gallons 

 which the gauger chose to fill in. This character of 

 fraud will be best indicated by an illustration. A 

 certain rectifier buys from a distiller, say, one hun- 

 dred packages of tax-paid spirits, containing, say, 

 forty proof-gallons each. He files with the collector 

 the descriptive notice above mentioned, and asks 

 for the issue of rectifiers' stamps to cover four thou- 

 sand (4,000) gallons of spirits after rectification. 

 A gauger is detailed to gauge these spirits out of 

 the rectifying-tubs, carrying with him a book of 

 blank stamps, to be filled up according to the con- 

 tents of each package. The gauger reports, on a 

 prescribed form, that the rectifier has placed the four 

 thousand gallons in, say, four hundred packages, 

 containing ten gallons each, and returns the stubs 

 of the stamps filled up in accordance with this state- 

 ment. The packages so represented are afterward 

 found to contain, say, eighty gallons each, and the 

 stamps thereon are filled up in accordance therewith 



so that, in fact, only fifty of the stamps were used to 

 cover the " straight spirits," and, under cover of the 

 remaining three hundred and fifty, twenty-eight 

 thousand (28,000) gallons of illicit spirits are placed 

 upon the market. This case is by no means an ex- 

 treme one, but is a fair example of what was the 

 constant practice in the districts herein specified. 



2. The other favorite method may be illustrated 

 as follows : 



The distiller sends to the rectifying-house a num- 

 ber of barrels of spirits upon which the tax has been 

 regularly paid. The descriptive notice aforesaid is 

 filed and a gauger detailed, who reports the stamps 

 destroyed, whereas the fact is that the stamps are 

 not actually destroyed. Either the packages with 

 the stamps uncanceled are returned to the distiller 

 and refilled with illicit spirits, or the stamps are re- 

 moved and placed by the distiller or rectifier on other 

 barrels of spirits upon which no tax has been paid. 

 These barrels are sent to the rectifier, and by him 

 shipped to some distant market without making any 

 record of the transaction on his Government books. 

 A modification of this form of fraud consists in the 

 rectifier's filing a purely fictitious notice, containing 

 a description of spirits which he has never received, 

 and emptying in place thereof an equal quantity of 

 illicit spirits. 



,In one of the two ways above described all the 

 frauds recently discovered have been committed, 

 and the Government has lost thereby at least four 

 million dollars in the last two years. The frauds 

 have mainly been carried on at four places, namely, 

 St. LouiSj Milwaukee, Chicago, and Evansville, and 

 all at distilleries producing what is known as "nigh- 

 wines." This class of spirits does not require age- 

 ing, as does the fine sour-mash whiskey made for 

 drinking purposes. It consequently does not excite 

 suspicion to find high-wines on the market to-day 

 that were produced yesterday. This rapid transfer 

 from distillery to the market affords facilities for re- 

 use of stamps, which are scarcely feasible with the 

 whiskeys that require a year's warehousing before 

 being ready for market, since it would be priina-facie 

 evidence of fraud if a distiller of fine whiskeys would 

 not take advantage of the year which the Govern- 

 ment allows his spirits to remain in warehouse with- 

 out payment of tax. If once in warehouse, the 

 Government is sure of its tax ; hence the compara- 

 tively small amount of fraud discovered in places 

 producing fine whiskeys. As a further reason why 

 fraud in these whiskeys cannot be perpetrated, it 

 it may be stated that as a rule they dp not require 

 rectification, and the frauds above indicated cannot 

 be committed without the aid of a rectifier. 



3. As an indication of the extent of the frauds 

 above described, I have the honor to report that 

 documentary evidence is in possession of this office 

 which has warranted the seizure of twenty-four dis- 

 tilleries and thirty-seven rectifying-houses, and im- 

 plicated over fifty United States gangers and store- 

 keepers. This evidence also shows the issue be- 

 tween July 1, 1874, and May 1, 1875, of fraudulent 

 spirits by the duplication of twenty thousand (20,000) 

 packages, containing probably twelve hundred thou- 

 sand (1,200,000) proof-gallons, and, by the aid of 

 false gauging, to the additional amount of one mil- 

 lion proof-gallons. This, of course, is but a portion 

 of the fraud actually committed, but in itself in- 

 dicates the loss of tax to the Government in ten 

 months to an amount not less than sixteen hundred 

 and fifty thousand dollars ($1,650,000). 



4. The checks'which have lately been established 

 to prevent the recurrence of such frauds as I have 

 described are as follows : 



1. As before stated, every barrel of spirits pro- 

 duced at a distillery has a serial number, which is 

 never duplicated. An account has been opened with 

 each distiller, in which is entered the serial number 

 of every package of spirits produced by him As 

 fast as reports of rectifiers are received showing the 



