When you visit a distillery built before 1984, you are often walking over pipes and lines that seem to be in the way of foot traffic. You might ask why are these lines here? Why were they not placed under the floor? The answer is twofold – taxes and regulations. The regulations prior to 1984 stated that every line had to be made where the government gauger could see them so that he could see that they were not being tapped into and whiskey diverted to avoid taxes. This all goes back to the 1870s and the “Whiskey Ring Scandal” of the Grant administration.
The excise tax on distilled spirits was put into place during the American Civil War. Whiskey was placed in Bonded Warehouses for a set amount of time before the taxes had to be paid. After that time, the government gauger would measure the amount of whiskey in the barrel and figure the tax on the whiskey before that barrel could be sold. In 1872, this period of time was one year. The Whiskey Ring began after President Grant was elected for a second term.
The Whiskey Ring was a conspiracy between government gaugers, distributors and distillers. Most of the distilleries involved were in Illinois, Missouri and Western Kentucky. The distillery would make their whiskey and place it in the bonded warehouse, but the gauger would only report half of the amount as being made for tax purposes. After the year had passed, the distiller would sell the whiskey, including the untaxed whiskey at the market price, but the profit from the untaxed whiskey would be split between the distiller, the distributor and the gauger.
The gauger would then place this money into Republican Party coffers to support the election of Republican politicians. The government was losing millions of dollars in tax money and the Republican Party coffers were filling up. Since government officials were part of this ring, it went on for several years. However, in 1875, Secretary of the Treasury, Benjamin Bristow, discovered what was going on by using agents from the Treasury Department and raiding several distilleries.
The trials started in October of 1875 and over 300 people were indicted. In the end, 110 people were convicted and over 3 million dollars in taxes were recovered. The conspiracy reached as high as the White House and President Grant’s private secretary, Orville Babcock, who was indicted as a member of the ring, but President Grant was found to be uninvolved in the conspiracy.
The results of this conspiracy was the tightening of the regulations for making distilled spirits. Bonded warehouses were required to have two padlocks on the door. The distiller held the key to one of the locks and the gauger held the key to the other lock. The distillery had to place every pipe and line that contained the spirits out in the open so the gauger could see that the whiskey was not being diverted and was accounted for in the tax records. The relationship between the distillers and the government became distrustful and tense. The government house, where the gauger kept his office, was a seperate building required by the regulations. The distillers showed their resentment of the gaugers in subtle ways such as never placing a restroom in the building.
The irony of this is that it was the government people who created the scandal. Yes, the distillers went along with the plan and profited from it, but it was the corrupt government officials who came up with the idea. And in the end, even the measures taken to prevent untaxed whiskey would not have stopped what was going on during the government corruption of the Whiskey Ring scandal.
In 1984, the distilled spirits industry regulations were changed. Many of the regulations that came as a response to the corruption of the Whiskey Ring were eliminated. The gauger no longer had to be on-site for the distillery to operate. There was greater trust between the distiller and the government. There are still a lot of regulations dealing with the production of distilled spirits, but not to the extent that there was before 1984.
Photos Public Domain