The illicit traffic is divided into two classifications: namely, supply and distribution. Supplies mainly come from—

1. Distillation of alcohol from molasses, sugar, grain, and other products.

2. Fraudulent diversion by permit of alcohol in bond made by legitimate distillers.

3. Conversion of denatured alcohol into neutral spirits by removing denaturants in "cleaning" plants.

4. Rum running of high-proof spirituous liquors from other countries and blending these with alcohol or essences to make the spirituous product.

These four supply methods of today, as always in the past, account for the nontax-paid product. During the period of prohibition it was always sufficiently plentiful to enable anyone who wanted liquor to buy it. It has been variously estimated that consumption, during the 12 years before repeal, amounted to somewhere between 150 and 200 million gallons annually. In those years, however, the bootlegger could sell his product only to two types of consumers; the individual consumer who would have a case of liquor delivered to him at his home, and the speakeasy, which always had to worry about the law. Of these there were many hundreds of thousands throughout the United States. For instance, the Honorable Grover Whelan, when police commissioner of New York City, estimated that in the city of New York alone there were then about 32,000 speakeasies.

It seems reasonable to suppose that any organized illicit traffic which could operate with impunity during 12 years on so huge a scale while in danger of the law, when scores of millions of dollars were being spent for enforcement and the only possible outlet was either the individual or the speakeasy, now can easily find the method to distribute its product through some portion of the present 225,000 outlets. Our investigation has shown us that few of those who had been engaged in any phase of the liquor traffic during prohibition are not now engaged in it. Today, however, these men are operating under licenses. Practically all of the important operators of yesterday who are not now in jail, for either income-tax evasion or bootlegging activities, are operating as licensed distillers or rectifiers or importers or wholesalers or retailers.

And since the retail price of liquor both for off- or on-premise consumption costs the consumer today almost as much as it did during prohibition days, there exists the opportunity, for those who wish to continue to operate illicitly, for the same kind of profits which they enjoyed heretofore.

However, today there is greater security, considerably less risk, and more assurance of profit for any well-organized illicit group. All they need, on one hand, is the product and strip stamps, real or counterfeit, to authenticate it. Then, on the other hand, a licensed import concern, or rectifying plant, or wholesale house, or a group of licensed retail stores, or a group of bars, taverns, or restaurants for on-premise consumption, and with control of such facilities they pass the illegal product from distillers, rectifying plants, or import firms through the wholesale house to the retailer. And the Government loses its taxes.

How do we know that this illicit product is still being produced in enormous quantities? By a number of methods. For instance,

Secretary Morgenthau, in his report of December 1934, stated that more than 10,000 illicit stills were captured during 1934. On Mr. Choate's computation these stills had an annual capacity in excess of 400 millions of gallons.

The still captures for 1935 were 16,585, and therefore exceeded those for 1934 by 6,000, or 60 percent. If the 1934 seizures had a capacity exceeding 400 millions of gallons, those of 1935 had a 680million annual capacity. Those who owned and operated these stills had an outlet for this enormous gallonage for as long as they were permitted to operate. If the average life was but 4 months, then these stills sold more than twice the total tax-paid consumption of 1934 and 1935.

If 6,000 more stills were in operation in 1935 than in 1934, it is logical to assume that the outlet for this product still exists. Stills are erected to produce an illicit product for which there must be an immediate and assured demand. Bootleggers do not make alcohol or whisky, facing the prospect of jail and heavy fines, unless and until they know just what they expect to do with their illicit product. However, in order that moonshine might safely be sold, it is necessary for the illicit operator to have some means of authenticating his product. This is done with the present strip stamp, which, when placed over the neck of a bottle, acts as the sole evidence of tax payment.

Now practically every citizen who sees a strip stamp on a bottle assumes that the stamp itself costs the amount of the tax. This is not so. This stamp costs 1 cent, whereas for domestically made liquor, in the case of a quart, it would represent the evidence of tax payment of 50 cents. In the case of a quart of foreign liquor, such as Canadian bottled in bond whisky, it would represent only the 50-cent full excise tax, but also, up to January 1 of this year, $1.25 of import duty. Furthermore, the tax in most States approximates $1 per gallon and this too is covered by the strip stamp except where local taxes are paid by stamps as they are here in the District.

Hence, if large scale operators could secure these strip stamps they could, for the small cost of the strip stamp, authenticate liquor which had avoided tax payment of from 50 to 200 times the value of the strip stamp.

Have the stamps been available? The Treasury Department says, "No." We say they are available in enormous quantities, perhaps to the extent of from 200 to 400 million, not counting counterfeit stamps which are being counterfeited in large quantities by various groups who then sell them to the illicit producer, who thereby authenticates his product and gives it the appearance of legitimacy.

Mr. Chairman, I went to the Bureau of Engraving and Printing and obtained detailed information on the strip-stamp situation from the date the liquor-taxing act of 1934 became effective through December 31, 1935. The figures I am putting into the record now cover three periods, namely,

(1) From February 1934 to June 30, 1934. (2) From July 1, 1934, to June 30, 1935.

(3) From July 1, 1935, to December 31, 1935.

These figures cover the issuance of strip stamps to collectors of Internal Revenue, of whom there are, I believe, 62. These stamps are sent out from the Bureau direct to collectors on their own order.

The Bureau keeps on hand, at all times, of different denominations,
from 2 to 3 months' supply. The Bureau's inventory on December
31, 1935, was:

Red strip stamps, 263,320,964.

Green bottled-in-bond stamps, 14,970,384.

Blue export stamps, 457,984.

Any stamps which do not reflect actual excise-tax payments in
the Treasury Department's Form 7095 (which details monthly col-
lections of internal revenue) should be in the hands of collectors or
the trade.

Below, in detail, is the history of the issuance of these stamps to
collectors. The column "Gallons authenticated" represents the
amount of gallonage-tax payment the issuance of these stamps should

This table discloses, perhaps, better than anything else which can be submitted the fallacy of using strip stamps to authenticate taxpaid liquor. During the period from February 1, 1934, to December 31, 1935, the Bureau of Engraving and Printing issued 1,743,050,000 strip stamps, which, when affixed to the neck of a bottle, would certify that all taxes and import duties on that particular bottle had been paid.

This amount of stamps actually would authenticate more than 242 million gallons.

The actual amount of gallonage which was authenticated as a result of taxes received by the Federal Treasury in this period was less than 155 million. Hence the amount of strip stamps in the hands of collectors and the trade would be sufficient to authenticate more than 87 million gallons. In terms of stamps, this would mean that at the present time more than 650 million stamps are in the hands of collectors and the trade.

The trade carries for its total requirements a running inventory of between 20 and 25 million stamps. Hence the excess in the hands of collectors should be more than 625 million.

The Bureau of Engraving and Printing has on hand more than 275 million stamps available to all collectors within no more than 2 weeks' time.

These facts show that collectors received in excess of their taxpaid requirements 215 million stamps in the fiscal year of 1934, 304 million stamps in the fiscal year of 1935, 107 million stamps between July 1 and December 31, 1935, and an estimated 25 million for January 1936, an estimated excess of 625 million since the act went into effect.

We admit that some of the stamps are in the hands of collectors and some are in the hands of the trade. Just how many are in the hands of collectors we have been unable to find out. An inquiry to the Treasury Department from Senator Copeland's office brought the following letter from the Honorable Guy T. Helvering, Commissioner of Internal Revenue:

FEBRUARY 1, 1936.

MY DEAR SENATOR: Further reference is made to your letter of January 24, 1936, in the third paragraph of which you request information relative to the number of strip stamps for distilled spirits which were in the possession of various collectors of internal revenue and any other agency of the Treasury Department as of June 30, 1935.

Senator BARKLEY. You say you have made some investigation; what is that organization? Is it an organization that has made this investigation?

Mr. GREENHUT. It is the National Civic Federation.

Senator BARKLEY. Who is the president or the chairman of the Federation?

Mr. GREENHUT. Elihu Root.

Senator BARKLEY. It is not an organization created for the purpose of this legislation.

Mr. GREENHUT. No; I have put in the record that the National Civic Federation was an organization formed in 1900 composed of representatives of capital, labor, and the public, as an educational movement seeking the solution of some of the great problems related to social and industrial progress, and at the present time Mr. Elihu

Root is honorary president and Mr. Matthew Woll is acting president.

Senator KING. Is that Mr. Woll of the American Federation of Labor?

Mr. GREENHUT. Yes, sir, it is, and I have put in the record previously a statement of this group.

The letter I was reading further continues:

It may be stated for your information that there are three types of strip stamps supplied for the use of the liquor industry for application to containers of distilled spirits, namely, red strips for the ordinary liquor and imported spirits, green strips for bonded liquor marketed in the United States which must be at least 4 years old before it is bottled, and blue strips for the same type of bonded liquor which is exported. The records of the Bureau do not disclose the number of these strip stamps in the hands of collectors of internal revenue on June 30, 1935. However, the records show that during the fiscal year beginning July 1, 1934, and ended June 30, 1935, this Bureau shipped to collectors of internal revenue for sale to the liquor industry a total of 928,540,420 strip stamps of the three types mentioned, in denominations ranging from one-tenth pint to 1 gallon.

Very truly yours,

GUY T. HELVERING, Commissioner.

The Commissioner says in his letter that "the records of the Bureau do not disclose the number of these strips stamps in the hands of collectors of internal revenue on June 30, 1935."

Mr. Chairman, these 625 million stamps could, in the case of imported liquor on which duties as well as taxes are collectible, represent evidence of possible tax revenue exceeding 700 million dollars. Does it reflect efficient supervision on the part of the Treasury that there are no records of their disposal?

We have done some checking on our own initiative and set forth as our unqualified conviction that these 625 million stamps are not all now in the possession of the various collectors of internal revenue. If they are not, Mr. Chairman, it means that they have found their way into the hands of those who propose to use them to avoid paying the duties and taxes which are due the Federal Government under law. Furthermore, the fact that any appreciable amount of these stamps may have been secured by illicit operators would constitute definite evidence that the system which the Treasury Department insists is the most perfect which can be devised, breaks down completely in its operation because it does not accomplish the purpose for which it was designed, namely, the assurance of collection of all taxes which are due.

Another point which may interest you is the fact that the strip stamp is perhaps the only revenue stamp used by the Treasury Deparment as an evidence of tax payment which does not cost the buyer the full amount of tax which it represents.

The strip stamp which costs 1 penny can be used to authenticate as much as a $2 tax payment. In other words, 200 times its actual cost. No illicit operator would try to obtain these stamps if they cost the full amount of tax payment which they authenticate.

Let me furnish you an additional example which shows that strip stamps are being used to authenticate liquor on which taxes