No one knows exactly how much money is involved in gambling in the United States. What we do know is that the American people are spending more on gambling than on medical care or education; that, in so doing, they are putting up the money for the corruption of public 'officials and the vicious activities of the dope peddlers, loan sharks, bootleggers, white-slave traders, and slick confidence men.
Investigation this past year by the FBI, Internal Revenue Service, the Narcotics Bureau, the Post Office Department, and all other federal investigative units has disclosed without any shadow of a doubt that corruption and racketeering, financed largely by gambling, are weakening the vitality and strength of this nation.
But, as I sit down today to write this article, a business executive with an industrial firm on the Eastern seaboard is telephoning a bookmaker to place a fifty-dollar bet on a horse race; a factory worker in a Midwestern town is standing at a lunch counter filling out a basketball parlay card on which he will wager two dollars; a housewife in a West Coast suburb is handing a dime to a policy writer who operates a newsstand as a front near the supermarket where she shops.
These people, and millions like them who follow similar routines every day, see nothing wrong in what they are doing. Many of them can afford the luxury of this type of gambling. They look upon it simply as taking a chance.
But they are taking a chance which the nation and its economy cannot afford. They are pouring dimes and dollars day by day into a vast stream of cash which finances most illegal underworld activities. The housewife, the factory worker, and the businessman will tell you that they are against such things as narcotics, bootlegging, prostitution, gang murders, the corruption of public officials and police, and, the bribery of college athletes. And yet this is where their money goes.
Last May, I appeared before a subcommittee of the House Committee on the judiciary and testified in support of anticrime legislation then pending before the Congress. Relying on rock-bottom estimates of the Department of Justice, I estimated—probably conservatively—that illegal gambling in the United States does a gross volume of $7 billion annually. That is more than the American people spend each year on bread.
Mortimer Caplin, the Commissioner of Internal Revenue, told Senator John L. McClellan's antiracketeering committee that a total of $25 billion a year is wagered in the United States, but he did not provide a breakdown on how much was legal and how much went into illegal channels. Twenty-five billion dollars is almost as much as we spent on education in this country last year.
Last August, John Scarne, who has made a study of gambling for many years, testified before the McClellan committee that the annual gross figure on illegal gambling involves about $50 billion. He testified that the bulk of this money was bet on horse racing through bookies. Fifty billion dollars is eight billion more than Congress appropriated last year for national defense. Our estimate of $7 billion may be low. Mr. Scarne's estimate of $50 billion may be too high, but it could be right. The truth is that nobody really knows. Senator McClellan pointed out that if the figure, of $50 billion is accurate, the government is being cheated out ofsome $5 billion a year in taxes owed by the gambling community.
Is this really the way American citizens want it to be?
The great discrepancy in the guesses as to how much is wagered each year is understandable, because once the housewife, the factory worker, or the business executive gives money to a local bookie or policy writer, it disappears into the pocket of the underworld figure, who is in business to cheat the government—and his customer, if he can: And while many persons may regard the bookie on the other end of the telephone and the neighborhood numbers writer as the gambling racketeers, actually they are usually the small-time front men who stand to make a profit with every person who bets with them.
The bookies make a profit from the bettors because they have an edge on every bet. They pay track odds, but usually not in excess of twenty to one. The odds at the track are calculated after deducting the 15 to 18 percent of the total betting pool which goes to pay taxes and other expenses. The bookmaker pockets that amount.
But he is not a man of unlimited resources. He must balance his books so that he will lose no more on the winner than has been bet on the other horses in a race, after his percentage has been deducted. He cannot control the choices of his customers, and very often he will find that one horse is the favorite choice of his clientele. His "action," as he calls it, may not reflect the action of the track. Therefore, he must reinsure himself on the race in much the same way that a casualty insurance company reinsures a risk that is too great for it to assume alone. To do this, the bookmaker uses the "layoff" man, who, for a commission, accepts the excess wager.
The local layoff bettor also will have limited funds, and his layoff bets may be out of balance. When this occurs, he calls the large layoff bettors, who, because of their funds, can spread the larger risk. These persons are gamblers who comprise a nationwide syndicate or combine. They are in close touch with each other all the time, and they distribute the bets among themselves so that an overall balance is reached on any horse race.
With a balanced book at any level—handbook, layoff, or syndicate—the edge is divided, and no one loses except the men and women who placed the bets. As an indication of the volume of business I am talking about, one of the largest operators in the, combine does a layoff business of $18 million a year. His net profit is $720,000 a year. This is a 4 percent return on volume, with relatively no risk, as a result-of the balancing of his books on each event.
The term "gamblers" is a misnomer for these persons. They accept money that the small gamblers wager, but they do not gamble at all. This is further illustrated, graphically, by what we know as the numbers racket.
A man purchases a ticket with three numbers on it, paying a dollar for the ticket. Since there are 999 such numbers, he should reasonably expect the odds to be 998 to 1. The numbers bank usually pays 600 to 1 on such a wager—or less—so you can see that the only gambler in this situation is the man who makes the bet. The operator pockets forty cents of every dollar bet -that is, if the game is run honestly. That, however, is too much to expect from this group. If the play is too high on any one number, they manage through devious means to ensure that a number on which he play has been small will be the winner.
While we do have great problems in estimating the total amount gambled illegally, we can get some idea from significant records made available by the Internal Revenue Service through raids.
For example, the records of an Indiana bookmaker indicate that for a three-day period he received a total of $1,156,000 in wagers. A check of the gross receipts of a large department store in the same- city indicated its gross for the same three days as $31,863. A Chicago bookie's records showed he took in $6,400,000 in total wagers for one year, while a chain grocery store in Chicago showed total gross receipts of only $293,000. While, actually, these comparisons may be unfair, in that the bookmakers probably are doing considerable layoff betting from smaller bookies in other cities and other states, these two instances are not unusual, as the following Internal Revenue figures indicate: A Los Angeles bookmaker, Jack Rosen, took in $4,511,000 in one year. A Miami bookie received $1,594,000; a Virginia bookie, $1,221,000 for an eight-month period; and a Tennessee bookmaker, $1,689,000 for five months. A Pennsylvania policy operator collected $587,000 in seven months.
In January, Internal Revenue agents raided a large-scale bookmaking operation in Florida. The raid was unique because some of the Revenue agents brought fire extinguishers and were able to douse a fire set to flash paper by operators in an attempt to destroy records. However, I was more interested in the agents' report that the bookmaking operation appeared to handle about $250,000 in bets daily.
These cases demonstrate that fantastic sums of money are being handed over to the gamblers by millions of Americans who, like the housewife, the factory worker, and the business executive, think they are simply taking a chance. They are not taking a fair chance The odds are loaded against them.
Their dimes, quarters, and dollars do not stay in the pockets of the big-time gamblers and racketeers. Just as legitimate businessmen invest their profits in other businesses, so do the capitalists of crime use their gambling profits to invest in other criminal businesses. High on the list is narcotics.
The horrors of the narcotics traffic need no elaboration. The contribution of gambling to narcotics smuggling, however, deserves wide attention. The profits from narcotics smuggling can be enormous, but it takes large amounts of money to finance a narcotics ring, and almost invariably gambling revenues provide the initial investment. Indeed, the use of such revenues to finance narcotics operations is so common as to be virtually inevitable.
During the 1920s and 1930s, such kingpin gamblers as Arnold Rothstein and Waxey Gordon invested huge amounts in the narcotics-smuggling business. An enormous international narcotics conspiracy in the 1950s was financed with the gambling profits and underworld credit of Harry Stromberg. He and seventeen others were convicted for their participation in this five-year heroin-importing operation.
The activities of Vito Genovese, a top racketeer, closely document the kinship between gambling profits. and narcotics traffic. The Federal Bureau of Narcotics has described Genovese as having been the motivating force behind an international heroinrsxiuggIing combine, and at the same time the controlling force behind gambling interests in several large cities. At one point, Genovese and several associates attempted to take over the numbers racket in the Spanishspeaking areas of East Bronx, New York. Their- plan was to use the gambling profits from the numbers operation to finance heroin shipments into this country. The gang was arrested before it could carry out the entire plan. Genovese is serving a fifteen-year prison sentence for àrcotics conspiracy, and his associates also received substantial sentences.
Strong-arm methods, including murder, are common in the illicit narcotics traffic. After a major international narcotics ring was broken up last year, two of the- twenty-four defendants were murdered before completion of the trial. One was shot down in the Bronx; the burned body of the other was found near Rochester, New York. The business executive, factory worker, and housewife never encounter the seamy side, but this is what their bets are financing. Again I ask, Is this really the way the American people want it to be?
This Administration is making a major effort to bring organized crime and racketeering under control. Congress, in the last session, with strong support from Democrats and Republicans, aut•hoñzed the Justice Department for the first time to deal with gambling activities. Our theory is that if we can reduce the gamblers' income, we will take a first major step toward cutting off the funds which now are being used to bribe public officials and finance the narcotics trade and other underworld activities.
In the past, only three effective laws have permitted the federal government to move against gambling. They are the wagering-stamp and excise-tax statutes, which basically were aimed at collecting revenue for the federal government, not at controlling criminal operations in this country, and a law prohibiting the interstate shipment of slot machines. One of our new laws makes it a federal crime for any person to move in interstate travel to promote or participate in a racketeering enterprise. Some of the nation's most notorious racketeers have been insulated from prosecution by living in one section of the country and having illegal gambling interests in another.
In one case, many of the racketeers who backed one of the nation's big number banks lived in a resort area far from the scene of their illegal operation. Every month a courier with a bag of money was dispatched from the racket enterprise. One month's payment alone was in excess of $250,000. The kingpins of this operation reaped huge profits and remained beyond the reach of the law because they had committed no crimes in the state in which they lived. We plan to move against such activities. The messenger who carries the funds across state lines and those who conspire with him are subject to the new law; and we hope, therefore, that we will be able to dry up this interstate flow of cash, which turns ten-cent bets in one city into massive profits in the hands of big-time hoodlums.
Two other new laws make it a felony to transmit bets and wagers between states by wire or telephone or to transport wagering paraphernalia to another state. Wagering paraphernalia, as defined by Congress, includes tickets; slips, or paper used in bookmaking, sports pools, or the numbers racket.
The new laws, which the President signed on September 13, had an immediate effect on the gambling community. The nation's leading race wire services, including Athletic Publications of Minneapolis, Minnesota—the so-called Minneapolis line, which furnished point spread and other sports handicap information—and the Nola News of New Orleans closed down. Federal field offices and local law-enforcement officials in every section of the nation report the hoodlums who control gambling have curtailed or shut down their activities. Some are even making plans to dispose of their homes and move to other countries that will permit them to operate in the manner to which they have been accustomed.
But many of the gamblers, while making themselves less vulnerable to federal prosecution, are standing by with a wait-and-see attitude. We know they are worried, and from the evidence already in hand, the FBI has estimated that this year alone we may have as many as ten thousand cases for investigation under the new laws. In the first four months that the laws were in effect, more than three thousand cases were brought under investigation.
The two other new laws extended the FBI's authority under the Fugitive Felon Act and prohibited the interstate shipment of weapons to or from persons accused of certain crimes. The Justice Department sought three other bills in the last session which are extremely important. They were enacted by the Senate and are now before the House. One would protect persons cooperating with the FBI from threats or coercion. Another would permit the government to give immunity to certain witnesses in labor-management racketeering cases, and a third would strengthen the 1951 law which prohibits interstate shipment of slot machines. The proposed measure would cover other types of gambling devices, including pinball machines.
The laws themselves, of course, while enabling the federal government to do a better job, will not make the final difference. That must come from the extra effort now being made by all the federal law-enforcement agencies and many local police officials, and from the support which this effort gets from the American people themselves.
The dishonesty of the gambling operations, the degradation of the narcotics and white-slave traffic are bad enough, but what really concerns me is the great wealth of the racketeers and the power that goes with it—the power to corrupt police and public officials, and in some instances, gain political control of an area.
The fundamental strength, of our democracy, which is based on respect for the law, is at stake. Individual citizens, by working to elect honest public officials and raise policemen's pay, can make a major difference in this matter. But in the last analysis it depends on the business executive, the factory worker, and the housewife who have been financing—big-time crime with their twodollar bets and their. ten-cent wagers. If they would stop patronizing the illegal bookie, the numbers runner, and the sports-pool operator, they could take the profit out of gambling and bring organized crime down to size quicker than all the combined efforts of the federal and local law-enforcement agencies.