- The Washington Times - Monday, May 26, 2008

If money is the “sinewsof war,” as Cicero wrote, fraud schemes such as bid-rigging, bribery and embezzlement are the cancers that thwart victory. During the Civil War, corrupt contractors “shamelessly hurried to the assault on the Treasury, like a cloud of locusts,” Regis de Trobriand wrote in “Four Years With the Army of the Potomac.”

In the words of Col. Henry Olcott, a Union officer assigned to ferret out fraud: “Men there were by the hundred thousand, ready to take the field; but, to uniform them, cloth had to be woven, leather tanned, shoes, clothing, and caps manufactured. The canvas to shelter them had to be converted from the growing crop into fabrics.

“To arm them the warehouses and armories of Europe, as well as of this country, had to be ransacked. All considerations of business caution had to be subordinated to the imperious necessity for haste. If it was the golden hour of patriotism, so was it equally that of greed, and, as money was poured by the million, by the frugal, into the lap of the government, so was there a yellow Pactolus diverted by myriad streamlets into the pockets of scoundrels and robbers — official and otherwise. The public necessity was their opportunity, and they made use of it.” (The Pactolus River in Turkey, according to the Oxford English Dictionary, was famed in ancient times for its golden sands.)

All manner and means of fraud occurred during the Civil War, with the government stuck “paying ruinous prices.” In the East and North, most expenses were for manufactured items; in the West and Southwest, it was for animals, forage and transportation.

The U.S. government purchased an incredible array of goods, including food, clothes and medicines. The volume was equally staggering, as shown by this sample of a few 1863 purchases: 8 million flannel shirts and trousers, 7 million pair of stockings, 325,000 mess pans, 207,000 camp kettles, 13,000 drums and 14,830 fifes. For a six-month period in 1861, 1.9 million arms were purchased.

“The problem of the war was not men, but money,” wrote Ohio Sen. John Sherman (Gen. William T. Sherman’s brother) noting that annual war expenditures had reached nearly $1 billion. According to Olcott, that $1 billion was spent with “no organized system for the prevention and punishment of frauds.”

These massive expenditures raised international alarm and concern for America’s future. A London newspaper wrote: “National bankruptcy is not an agreeable prospect, but it is the only one presented by the existing state of American finance. Never before was the world dazzled by more reckless extravagance. Never before did a flourishing and prosperous state make such gigantic strides toward effecting its own ruin.”

However, President Lincoln knew things would improve eventually, according to Assistant Secretary of the Treasury Maunsell Field. Lincoln was visited by a delegation of bank presidents “at one of the gloomiest periods of the war, when depression and discouragement prevailed,” and was asked whether his confidence in the future was beginning to be shaken. In response, he recounted a fearful personal anecdote from years before and concluded by saying: “The world did not come to an end then, nor will the Union now!”

There were bounty jumpers who, after collecting a fee for enlisting, put on a disguise or went to another location to enlist again and, by so doing, collect another bounty. One peripatetic scammer enlisted multiple times on a single trip in New York State, thereby collecting bounties of several hundred dollars each time at Albany, Troy, Utica, Buffalo and Elmira.

Counterfeit currency was passed freely, and good luck to those who attempted to make a bid at any government auction. Conspirators often colluded to drive away competition by aggressively bidding to the level where prices became outrageous. By doing so, they made sure no unaware honest bidder would dare attend another auction. Smuggling was big business. Stephen Vincent Benet’s Pulitzer Prize-winning poem “John Brown’s Body,” included this verse:

Shadows sliding without a light,

Through the dark of the moon, in the dead of the night,

Hoops for the belle and guns for the fighter,

Guncotton, opium, bombs and tea.

Fashionplates, quinine and history.

Sutlers often sold defective items to soldiers at enormously inflated prices, including watches that wouldn’t keep time a few days after the purchase and spoiled food that would sicken or kill. One writer commented, “In every regiment more than one death could primarily be attributed to certain articles in the sutler’s tent.”

Quartermasters withheld a significant portion of goods requisitioned. That is, on a requisition of 100 pounds of meat, the quartermaster might distribute just 70 pounds, claiming supplies were short so everyone had to take a partial order. Of course, in his account books, he noted that the entire requisition had been distributed, thereby giving himself the remaining 30 pounds to sell for his personal profit.

The soldier invariably would point out that his regiment often received half-rations and then ask, or at least wonder, when back rations would be distributed to make up for all the shortages. Not surprisingly, “no back rations” was the oft-repeated response.

The most egregious schemes may have been those of “fraudulent inferiority.” In the parlance of law enforcement today, it’s called product substitution. Hats quickly dissolved in the rain, and shoes fell apart, often in a matter of weeks. Blankets sold as woolen were made out of mystery materials; the only thing certain is that they didn’t keep soldiers warm or dry.

Forage for horses and mules was diluted by a “dishonest mixture of oats and Indian corn.” A contractor charged “for nursing and subsisting three hundred and fifty men from the Steamer Cosmopolitan,” when in fact records revealed that just 97 men received care.

Guns were purchased that didn’t shoot, and powder often didn’t explode. In one instance, the War Department sold a large quantity of condemned carbines for a nominal sum, bought them back at $15 each, sold them at $3.50 each and ended up buying them back at $22 each.

A “dishonest parasite” named Henry Stover profited immensely through fraud in oil contracts, Olcott wrote in “The War’s Carnival of Fraud.”

“Without having bought a gallon of ‘the best wintry strained sperm oil,’ such as his contracts called for (and despite his taking the same at one dollar per gallon, when the market price stood at two dollars), he had realized a profit of one hundred and seventeen thousand dollars on the year’s transactions!” Olcott said.

According to a journalist’s 1886 memoirs, many women engaged in “disgraceful schemes of plundering the Treasury” by gaining favor with Congress members controlling government spending: “The most active advocates of these swindles were the lady lobbyists, the widows of officers of the army or navy, others the daughters of congressmen, and others had drifted from home localities where they had found themselves the subjects of scandalous comments.” Some became quite successful; after all, “Who could blame the Congressman for leaving the bad cooking of his hotel or boarding-house to walk into the parlor web which the adroit spider lobbyist had cunningly woven for him?”

Edmund Burke, a Revolutionary-era figure, said the only thing necessary for evil to occur was for good men to remain silent. In the Civil War, a lot of good men, in the name of greed, participated or at least looked the other way. All it took was a scheme and usually someone to approve a false invoice or phantom delivery.

With the huge illegal gains, buying cooperation was pretty cheap: “Presents of horses, carriages, jewelry, wines, cigars, and friendly help toward promotion,” which passed “under a politer name than bribery.” Another writer opined: “A little money, a good deal of soft talk, unlimited liquor, and, occasionally, some pressure from superiors, went a long way.”

Many people took note of the problem but were ill prepared to combat it. Secretary of the Treasury Salmon Chase remarked in his diary: “It is impossible for me to look after all the acts of all the agents of the department. But whenever informed of any delinquency, I institute proper investigation, and take proper measures.”

A congressional committee investigated this “colossal graft” and produced a scathing 1,109-page report, condemning “such prostitution of public confidence to purposes of individual aggrandizement.” Secretary of War Edwin Stanton commended Olcott after the conviction of a man named Kohnstammwho submitted fraudulent invoices of $300,000: “It is as important to the government as the winning of a battle.” After a four-day trial, Kohnstamm was convicted in 20 minutes.

Lincoln got Congress to pass the False Claims Act in March 1863. By combining “Lincoln’s Law” with the already existing financial rewards for reporting corruption, it was hoped that more fraud would be reported to the government, which would have stronger laws to exact stiffer penalties.

The process of collecting from the government a percentage of funds recovered for reporting fraud is known as “qui tam” and had been around before the Civil War, with the first recorded use in 1755. Qui tam is short for a longer Latin phrase meaning, roughly, “He who sues for the king also sues for himself.”Combating fraud had been remarked upon by the philosopher Thomas Hobbes, who wrote that the most critical elements of war were “force and fraud.” You lose with too little force or too much fraud.

Olcott estimated that 20 percent to 25 percent of the entire expenditures of the Union government during the Civil War, or about $700 million, were “tainted with fraud.” Surprisingly, however, he believed there was something worse than this “Carnival of Fraud.”

America could recover from the theft and embezzlement of enormous amount of public funds because of its “boundless resources and unprecedented recuperative methods,” he said. More pernicious, according to Olcott, was that “every dollar of this ill-spent treasure contributed toward a demoralization of the people, and the sapping of ancient virtues.”

Stephen Vincent Benet shared his view of those making money on the war:

And, should war and hell have the same dimensions,

both have been paved with the best intentions

and both are as full of profiteers

Paul N. Herbert of Fairfax County is a frequent contributor to the Civil War page.

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