William Adams Richardson

(Source)

Throughout the two terms Ulysses S. Grant spent as President of the United States, his administration was beset by various scandals. Several officials were accused of wrongdoing, with lax oversight contributing to the general air of corruption and wrongdoing.

Although it attracted less attention than some of the other Grant Administration scandals, the Sanborn Incident would ultimately end the Cabinet service of William Adams Richardson, the Secretary of the Treasury. While Richardson had enjoyed a sound reputation before this matter wasn't accused of directly benefiting the questionable actions in this affair, he was strongly condemned for failing to stop the scandal in its tracks.

Early life

Richardson was born on November 2, 1821, in Tyngsborough, Massachusetts. He graduated from Harvard University in 1843, and three years later he was admitted to the bar. He began practicing law from a firm he established in Lowell; he would move it to Boston in 1860.

Early in his career, Richardson dabbled in banking and politics. He briefly served as the president of a Wamesit bank, and held the role of director at other banks in the area. He was elected to the city council of Lowell in 1849, re-elected in 1853, and made president of the council a year later. Initially a Whig, he later joined the Republican Party.

Richardson also held a number of judicial roles, serving as a justice of the peace for Middlesex County from 1847 to 1854. He became a judge for the county's probate court from 1856 to 1858, and its probate and insolvency court from 1858 to 1872.

Richardson also found time to compile and publish the state statutes for Massachusetts, completing this project in 1855 and revising it annually through 1873. He would launch a similar undertaking for the legislation of the U.S. Congress, issuing supplements on these laws from 1874 until his death.

Treasury Department

In 1869, Grant named Richardson as Assistant Secretary of Treasury. The appointment was made at the request of Treasury Secretary George S. Boutwell, a former Massachusetts congressman. Richardson had been offered a judicial role on the Massachusetts Superior Court, but turned it down in order to join Grant's administration. Richardson also briefly served as the acting Attorney General in 1870.

When Senator Henry Wilson of Massachusetts became Vice President on March 3, 1873, Boutwell resigned his post to fill the vacancy in the Senate. Richardson moved up to become Secretary of the Treasury, though he continued Boutwell's policies aimed at reducing the public debt and building up a federal reserve.

One of the most significant transactions Richardson handled while at the Treasury was the Geneva Award, which in 1872 transferred $15.5 million from British coffers to the United States. Several Confederate raiding ships, most notably the CSS Alabama, had been constructed in British shipyards during the Civil War and gone on to wreak havoc on Union shipping during the conflict. The "Alabama Claims" sought to collect damages for the British role in the matter, and the settlement was finally agreed upon after an international commission met in Switzerland.

The award caused some nervousness in the financial sector, since the transport of such an extraordinary amount of money over the Atlantic Ocean carried a good deal of risk. Richardson instead managed the transaction through a process of receiving and canceling bonds to move the money in a safe manner.

Richardson also played a key role in the federal response to the Panic of 1873. This recession occurred when the European stock market crashed, prompting a selloff of American investments. Railroad bonds were a particularly popular item in these transactions, and as a result the market was flooded with bonds. The railroad companies weren't able to find lenders willing to extend them loans, and many went bankrupt. In the United States, about one in four railroads (89 out of 364) failed.

An illustration of the Panic of 1873. (Source)

The full force of the Panic hit the U.S. on September 18, 1873, when Jay Cooke & Company in New York City collapsed. The bank had overextended itself, with heavy investments in railroads sealing its fate. Two days later, the New York Stock Exchange suspended trading for the first time in its history after economic conditions failed to improve.

A day later, Richardson and Grant traveled to New York to meet with several prominent businessmen. The federal government had promised to buy $10 million in bonds to try to restore confidence in the financial system, and quickly increased this sum to $13 million. The businessmen said it wasn't enough; money was in tight supply, thanks to several commercial banks calling in their loans. To avoid plunging the entire nation into ruin, they argued, the government would need to increase currency in any way possible. Richardson was pressured to release the Treasury's entire reserve of $44 million in order to ease the money market.

Richardson resisted these calls, saying it was unclear if he had legal authority over the disposition of the reserve. He asked Congress to make a judgment, but legislators dithered on the issue. In the last two months of 1873, receipts fell below expenditures and Richardson was forced to act. Although he didn't release the entire reserve, he issued $26 million in greenbacks to help meet the budget.'

While the move was of questionable legality, Congress didn't intervene to challenge it. The cyclical expansion and contraction of the economy, with its accordant panics, would persist for several decades until the creation of the Federal Reserve in 1913.

Richardson was generally praised for his action. The injection of cash into the economy was seen as helping to ease the crisis, while the decision not to empty the reserve was seen as a prudent way to keep the government from getting too heavily involved in the financial sector's woes. Secretary of State Hamilton Fish wrote him, "I assure you and he reached on Sunday last. I hear from every one, except those interested in speculative stocks or bonds, one universal approval of the 'heroic action of the President and Secretary of the Treasury.'"

Nevertheless, the economy would remain depressed for another four years. The bankruptcy of Jay Cooke & Company caused a nationwide run on banks, and more than 100 financial institutions failed. This caused a ripple effect of business crashes; about 18,000 closed their doors in the two years following the start of the Panic, with the unemployment rate reaching 14 percent. A collapse in farm prices hurt the agricultural sector as well, while skyrocketing interest rates made it harder for Americans to get a loan or escape debt.

The Sanborn Incident

One year before the Panic, Congress has passed legislation ending the practice of allowing private individuals to pursue the collection of delinquent taxes. However, Representative Benjamin F. Butler, a Republican from Massachusetts, managed to add a rider allowing the Secretary of the Treasury to employ not more than three men to assist the Bureau of Internal Revenue with its duties.

Four people had secured contracts under this rider, but they only managed to collect about $5,000 over a two-year period. Another private collector, John D. Sanborn, would be much more successful. Sanborn had been working as a special agent with the Treasury Department since 1869; a Massachusetts resident, he was personally acquainted with both Boutwell and Butler. He had also been an agent in Butler's cotton speculation around the time of the Civil War, and the congressman strongly supported his appointment.

Richardson was the Acting Secretary of Treasury when he approved Sanborn's contract on August 13, 1872, with a mandate to collect illegally withheld excise taxes and other revenue from 39 whiskey distillers and entities. Whiskey had a steep excise tax, but it was often evaded. In his work with the Treasury Department, Sanborn had been credited with helping to secure indictments against several tax dodgers, including a small whiskey ring operating in New York City, in the spring of 1872.

Sanborn started his work by pursuing the delinquent taxes recorded at the Boston office of the Bureau of Internal Revenue. On October 25, he asked that his contract be expanded so he could go after 760 people who were delinquent on their estate or income taxes. This request was approved five days later, and in early 1873 this mandate was further enlarged with another 2,000 names. On July 7, he was approved to collect delinquent taxes from 592 railroad companies. As stipulated in his contract, he was able to keep half of whatever revenue he collected.

By entrusting Sanborn with tax collection on such a large number of people and entities, the Treasury Department had essentially flipped the intended relationship between private tax collectors and internal revenue authorities on its head. Instead of assisting the Bureau of Internal Revenue with its work, agents frequently found themselves helping with Sanborn's duties. This began to attract some negative attention among the agents, who feared that the scope of Sanborn's work had grown too large. They also noted that his work was essentially unnecessary, since they would have been able to collect the full value of the delinquent taxes without Sanborn's intervention; his involvement merely ensured that the amount going to the government would be halved while Sanborn would be able to enrich himself. A formal complaint was sent to the Treasury Department, but it was ignored.

Sanborn ultimately collected about $427,000 - a minor sum compared to the $102 million in total internal revenue in 1874, but a vastly greater amount than private collectors had typically been able to collect. Not all of the money had been collected in the most above-board way. He was often abetted by corrupt Treasury officials who encouraged those with tax liabilities not to pay up, giving Sanborn an opening to collect and take his fee. Sanborn also reportedly went after some entities that weren't actually delinquent at all.

The questionable practice eventually resulted in Sanborn's indictment for revenue fraud and the scrapping of his contract. The House Committee on Ways and Means opened an inquiry into the matter between February and May of 1874. The investigation was eagerly supported by Boston financiers and others opposed to Richardson's policies. The Treasury was nearly bankrupt at the time, and had allowed Sanborn's conduct to proceed unchecked; the sordid affair had the look of a conspiracy to defraud the government and enrich a select few. The incident offered the prospect that Richardson would be ousted and replaced with someone more in light with the financial sector's views.

The committee investigation included testimony from Sanborn himself. Since he was entitled to half of what he collected, he said he had received $213,500 for his work; however, he agreed that the citizens he collected from would have likely paid on their own, or that revenue agents would have collected the money as part of their regular duties. Sanborn claimed that more than $150,000 of his share went to Richardson, with much of the rest going to various campaign funds.

Richardson also appeared before the committee, but proved less than helpful. He said he couldn't recall signing Sanborn's contract, and admitted that he often signed documents without actually reading them.

The committee issued its report on May 4, concluding that the Treasury Department had utterly failed to supervise Sanborn's activities. Boutwell had followed the law in requiring that Sanborn set forth a written oath for each claim he proposed to recover, including the specific violation and the person or entity he wished to collect money from; he just hadn't enforced this rule. Richardson had been even more lax, demonstrating "an entire want of knowledge" on the laws regarding private collectors and their contracts. "His only connection, so far as he could remember, with these transactions, was in affixing his signature to the various papers presented to him as a mere matter of office routine, without knowing their contents," the committee declared.

Sanborn, meanwhile, had used his contract to go after a wide range of targets and bilk the country of revenue. The committee concluded that Sanborn's last contract was "substantially the entire list of railroads within the United States." He had simply gotten the 592 names from a register of railroad companies, and only 150 were actually delinquent on their taxes. Moreover, "a very large percentage, if not all" of the money Sanborn raked in would have been collected by the Bureau of Internal Revenue in their usual duties; as a result, the Treasury had gotten only half of what it should have received, with Sanborn pocketing the other half.

The committee was highly critical of Richardson as well as the Treasury Department's assistant secretary and solicitor. The three officials had essentially passed the buck among themselves. The assistant treasury also admitted that he signed documents without reviewing them, and said these had been prepared by the solicitor. The solicitor testified that he was simply a law officer acting on the directions of his superiors, which naturally would include Richardson and the assistant secretary. All three officials, the committee said, "deserve severe condemnation for the manner in which they have permitted the law to be administered."

The committee advised that any contracts made with Sanborn and the other private collectors should be revoked, and that no further claims should be made on them. It also declared the outsourcing of delinquent revenue collection "fundamentally wrong" and advocated that it should be stopped immediately.

The report stopped short of advising punishment for any of the Treasury officials, saying there was nothing "impeaching the integrity" of either Boutwell or Richardson. Sanborn himself would ultimately be acquitted, since he had been under contract to collect delinquent taxes and hadn't actually broken any laws in the course of this work.

Nevertheless, the assistant treasury secretary would resign and the incident brought swift calls for Richardson to be removed from the Treasury. Representative James Burney Beck, a Kentucky Democrat, declared the collection contracts to be "reeking and buoyant with corruption." Wilson wrote to Grant saying, "Since I have been in Washington the past few days, I have heard the strongest condemnation of [Richardson's] unfitness."

Grant was reluctant to dismiss Richardson, going so far as to appeal to individual House committee members in an attempt to keep them from issuing a report condemning the Treasury Secretary. Though he finally asked Richardson to step down, he also made sure that Richardson would have a soft landing. On June 1, just three days before Richardson's resignation, Grant nominated him for a vacant seat on the U.S. Court of Claims, a body settling claims against the United States. He was quickly confirmed by the Senate.

Later life

Benjamin H. Bristow, a Kentucky lawyer, succeeded Richardson as Treasury Secretary. Grant appointed him with some reluctance, since his opposition to inflationary policy and other monetary views were virtually opposite to Richardson's. However, he considered that the choice would help shore up Republican chances in the upcoming election.

It was not to be. Angered by the depressed economy and scandals in the Grant administration, Democrats more than doubled their presence in the House of Representatives in the 1874 midterm elections and regained a majority in the chamber for the first time since 1856; they would hold control of the House for another six years. The party also gained several seats in the Senate, although the Republican Party retained control.

Richardson would hold a seat on the U.S. Court of Claims for the rest of his life. In January of 1885, President Chester A. Arthur promoted him to the court's chief justice position to replace Charles D. Drake. He also busied himself with other work, including a plan for the enlarged jurisdiction of the Massachusetts probate courts which the state legislature subsequently passed. Between 1879 and 1894, he taught law at Georgetown University.

Richardson died in Washington, D.C. on October 19, 1896.

Sources

U.S. Department of the Treasury, The Miller Center at the University of Virginia, Federal Judicial Center, "The Panic of 1873" on American Experience at pbs.org, "Discovery and Collection of Monies Withheld From the Government" report by the House Ways and Means Committee on May 4 1874, "Historical Perspective: The Unhappy History of Private Tax Collection" at the Tax History Project on Sep. 20 2004, "New York and the Panic of 1873" in the New York Times on Oct. 14 2008, The Twentieth Century Biographical Dictionary of Notable Americans, The New England Historical and Genealogical Register Vol. 53, The New Encyclopedia of American Scandal edited by George C. Kohn, Biographical Directory of United States Secretaries of the Treasury 1789-1995 edited by Bernard S. Katz and C. Daniel Vencill, Monetary Policy in the United States: An Intellectual and Institutional History by Richard H. Timberlake, A Sketch of the Life and Public Services of William Adams Richardson by Frank Warren Hackett, The Reconstruction Years by Walter Coffey, Grant by Ronald Chernow