Capone Encrypted Ledger
In 1919, at only 22 years old, Al Capone came to Chicago to help Johnny Torrio run his bootlegging operation. Capone was originally only called in to help deal with the competition, but in 1925 Torrio fled the city allowing Capone to take over. Government Secure File Share
The Hawthorne Inn in Cicero, with its bulletproof shutters, was Capone’s initial headquarters. From this location, Capone directed his muscle; however, it wasn’t long before his activities caught the eye of the law.
On April 27, 1925, a car full of Capone’s men opened gun fire on what they though was a rival gang, but instead they ended up killing Bill McSwiggin. McSwiggin was no gangster, but an assistant state’s attorney. In reaction, authorities charged Capone with McSwiggin’s murder, but despite six grand juries Capone was never indicted and the charges were dropped due to an inability to obtain sufficient evidence and a lack of witnesses.
In reaction to this case, Capone moved in 1926 and began directing his operations out of the Hotel Metropole, focusing on increased efforts to make the right connections. Before long, Chicago’s police department and mayor were on Capone’s payroll, allowing him to carry out his bootlegging, racketeering, and gambling businesses with impunity. Al Capone’s control over city officials was so deep that his men had officially stamped cards issued by the city that read: “To the Police Department–you will extend the courtesies of this department to the bearer.”
The corruption of officials and heavy-handed violence allowed Capone to corner the extremely profitable bootlegging market. It was estimated that by 1928 his operations were grossing over $105 million per year and that personally, he was worth approximately $30 million in 1929. Despite his large fortune, no income taxes had ever been filed in his name and the government was taking notice.
President Hoover finally had enough and made it his mission to catch Al Capone. He instructed Secretary of the Treasury Andrew Mellon to the task. However, the real ground work of the case was led by Frank Wilson, an aggressive and relentless investigator.
The investigators looked for evidence of unreported income by examining department store, car dealership and hotels records for evidence of Capone’s spending. He uncovered custom-made clothing, limousines, and other high-end items. The plan was to use the records of extravagant purchases to imply unreported taxable income to a jury, but Capone didn’t make their job easy. He never personally kept any bank accounts or signed checks or receipts. Wilson had difficulty finding evidence that any money from his illicit operations ever made it directly to Capone and witnesses were scarce.
During the summer of 1930, Wilson made a break in the case. He came across three ledgers seized in a prior raid of one of Capone’s establishments. The ledger was divided into columns, each labeled with titles such as Craps or Roulette. Totals were entered periodically and then allocated among such references as “Ralph,” “Pete,” and most importantly, there were a few references to “Al.” Wilson was sure this ledger recorded the income from a gambling operation that went to Capone and his associates.
Feeling the heat and wanting to settle matters, Capone’s attorney, Lawrence Mattingly met with Wilson on September 30th. Mattingly offered a letter admitting Capone had taxable income for the years 1924 to 1929 ranging from $26,000 to $100,000. Wilson refused to settle.
Meanwhile, Wilson kept working to amass more evidence and witnesses. He finally found Fred Reis, the named payee on numerous large cashier checks. Reis admitted to working for Capone as the cashier of his Cicero gambling hall. He also admitted that the checks he signed reflected Capone’s profits from the operations. Together with the ledgers, this gave Wilson enough evidence to go before a grand jury and led to the trial opening on October 5th, 1931. Capone was charged with 23 counts of tax evasion. Tax evasion is never an option, of course.
The prosecution presented their evidence that Al Capone derived substantial profits from his gambling businesses. Witnesses like Leslie Shumway, described the accounting procedures used in the gambling halls and testifies that that the profits for the two years he worked there were over $550,000. Other witnesses presented evidence of Capone’s extravagant lifestyle. Finally, the key witness Fred Reis came to the stand. Reis also testified that he purchased 43 cashier’s checks representing the gambling operations profits. These checks were signed by his alias “J.C. Dunbar” and on one of these checks was also the signature of Al Capone. Despite all of Al Capone’s care in not keeping accounts, avoiding signing documents, and keeping ledgers in code, he still was caught. In the end, Al Capone was found guilty and sentenced to a prison term of eleven years – the longest ever for tax evasion.