Chapter Eight
The Customs Scandal of 1926

Throughout the early 1920s, Canada’s federal government generally remained aloof from the American government’s frustration with trying to enforce the Volstead Act. As it was, Canadian distilleries and breweries were on a roll, pumping out millions of gallons of liquor and beer into a parched US market. While the United States’ neighbour to the north provided both the operating base and the raw materials for what was a multi-billion-dollar criminal industry, for a long time Canadians generally, and their government particularly, remained aloof and turned a fairly indifferent eye to what was going on. Some estimates had it that around five million gallons of liquor were smuggled into the US in 1924 and, as a result, the administration of the Canadian Customs and Excise Department soon became the bête noire of William Lyon Mackenzie King’s Liberal government.

Early in 1925, when the Liberal minority government was appraised of the inefficiency and corruption that existed throughout the department, it launched an informal investigation to look into the matter. When the King government appeared reluctant to act on its findings, H. H. “Harry” Stevens, the Conservative member of Parliament for Vancouver Centre, finally stood up in the House of Commons on February 2, 1926, and, in a four-hour-long tirade, detailed the inside information that had been leaked to him. Stevens charged that the government was well aware of flagrant violations of customs regulations, that a number of officials in the Customs and Excise Department were involved in wrongdoing and that corruption was endemic throughout the department. He even accused Jacques Bureau, its minister, of destroying nine filing cabinets crammed full of incriminating documents.

In response to his attack, the House was forced to create a special nine-member committee to investigate the administration of the department and the alleged losses to the public treasury because of inefficiency or corruption on the part of officers of the department. After 115 sittings and testimony from 224 witnesses, the final report of the parliamentary committee was completed and ready to present before the House on June 18, 1926. It confirmed that there was indeed widespread inefficiency and laxity in the department (some senior employees were found to be so delinquent in their duties that the report recommended the dismissal of nine of them) and that stolen automobiles were smuggled into Canada while liquor was being smuggled into the United States. In his book, Iced: The Story of Organized Crime in Canada, author Stephen Schneider said that the committee even went so far as to implicate the minister of customs and excise himself. The evidence revealed that the department, along with its deputy minister, had a large quantity of seized liquor transported from Canada customs warehouses in Montreal to their homes in Ottawa. As C. P. Howell, the customs officer in charge of the Roosville, BC, border crossing recalled, “It was not the rum-runners who corrupted us, but the Canadian politicians, federal, provincial and municipal.”

Realizing full well that his government would lose in a vote in the House once the damning disclosures into the depth and scale of the customs scandal were presented, King resigned as Canada’s prime minister on June 28 and asked Governor General Lord Byng for dissolution of Parliament and for an election to be called. But Byng refused, and the next day he asked Conservative leader Arthur Meighen to form a government, thereby stimulating a major constitutional crisis. Byng overstepped by refusing King’s request for an election call and instead handing power over to the Opposition. Consequently, the new Conservative government fell three days later and a general election was called. Still, the Meighen administration ensured the passage of a censure resolution during its brief time in power. On June 29 it received unanimous support in the House to add a short statement to the report of the parliamentary committee: “Since the parliamentary inquiry indicates that the smuggling evils are so extensive and their ramifications so far-reaching that only a portion of the illegal practices have been brought to light, your committee recommends the appointment of a judicial commission with full powers to continue and complete investigating the administration of the Department of Customs and Excise and to prosecute all offenders.”

On July 20, 1926, the Royal Commission on the Department of Customs and Excise was established by an Order-in-Council. Although bootlegging (delivering up illegal liquor by land) was to be its primary focus, it was also mandated to look into the liquor smuggling controversy. Meanwhile the election campaign was underway, with the overly confident Tories expecting the election to be fought over the customs scandal. King, on the other hand, conducted the Liberals’ campaign on what they considered was the more serious constitutional crisis. (Lord Byng, as Dave McIntosh described him in his book The Collectors: A History of Canadian Customs and Excise “was a high-born Briton deciding on his own, like some old-style colonial governor, when and how elections should be called.”) On election day, September 14, 1926, the “King-Byng affair” proved to be of more consequence to the electorate than the customs scandal and the King Liberals, although they won fewer seats than the Conservative Party, were able to govern with the support of the Progressive Party.

The Royal Commission began travelling the country in November that year and heard more than fifteen million words of testimony by the time they were finished in September 1927. Meanwhile, a month earlier, in a letter dated October 9, 1926, that the customs department delivered to the RCMP’s director of criminal investigations, an undercover agent provided detailed background about how West Coast exporters were redirecting liquor ostensibly consigned to foreign destinations: “Large shipments of liquor in transit (‘in transitu’) between Europe and Central American ports are landed at Vancouver and held in Sufferance sheds until convenient to trans-ship to certain boats engaged in rum running … Among water front employees, such as Stevedores, Checkers, and Police, with whom I conversed, it is the opinion that a large quantity of the trans-shipped liquor never reaches the foreign Ports to which it is consigned, but is landed in Canadian waters, and ultimately returns to Vancouver for distribution among local bootleggers by such firms as Consolidated Exporters Corporation Ltd, Manitoba Refineries Ltd., Kennedy Silk Hat Co., Henry Reifel, R. T. Morgan, and other prominent men connected with distilleries and breweries in B.C. are freely spoken of as being the leading men in these activities.”

In My Dad, The Rum Runner, the biography of his father, Captain Stuart Stone, author Jim Stone said that when bonded liquor supposedly destined for Mexico or Central America was smuggled back into Canada after being landed and unloaded tax and duty free, it could be subsequently sold at a discount to corrupt local buyers. Overall though, the Royal Commission’s third interim report revealed that “enormous quantities” of liquor were shipped in transit without any duty paid: “The traffic has been carried on by fictitious consignees, clearances on false declarations as to destination, false return clearances and false landing certificates.” And on the recommendation of the commission, the government passed legislation declaring that no clearance document was to be issued unless a customs collector received a bond for double the amount of customs duties payable.

Philip Metcalfe explained how in transitu worked in his biography of Roy Olmstead: “Merchandise shipped from outside Canada to parties outside Canada technically never entered Canada and thus never came within the jurisdiction of Canadian customs. On paper all Consolidated had to do was to pretend that its European liquor [buying] agents in London and Glasgow were independent exporters shipping liquor through Victoria and Vancouver to Mexico.” The illicit liquor trade rose to an art, since “on paper the arrangements were made at both ends and Consolidated, like a magician’s knot in a string, all but disappeared … In transitu shipments not only enjoyed the $20 savings per case but required no bond guarantee.” Still, “the bureaucratic edifice of Canadian Customs swelled to the size of a paper palace” since the documentation “specifying carriers on mixed loads for each step of the long journey from Scotland to Mexico increased the mysteries of the paperwork tenfold.”

It also provided another loophole that Canadian distillers were able to exploit. Federal law specified that all Canadian liquor, which, of course, wouldn’t end up in a bonded warehouse, was required to age for two years at the distillery unless exported. In order to circumvent this requirement, Canadian liquor companies, like those affiliated with Consolidated Exporters, would ship their freshly distilled product to connections in London, Glasgow and Antwerp and then have it shipped back to Canada. This practice, which was used to avoid restrictive legislation, was known as double-stamping. And as Metcalfe pointed out, “The additional transportation costs were minimal, and the quality of the liquor apparently benefited greatly from the rolling sea voyage.”

In his tale, “Rum Row: Western,” which appeared in the May 1932 issue of American Mercury magazine, Robert Dean Frisbie provided a supposedly fictional account of how in transitu was actually carried out. He suggested we consider a distillery located in Canada and only fifty miles from the border where, on the US side, a farmer is eager to get his hands on a bottle of Old Crow made in that distillery. So how does it actually get delivered to this farmer? “The distillery ships it to Halifax, where there are agents to pay, and warehouses and handling expenses and duties. From there it is shipped to a European port and is unloaded and put in bond. All this is paid for, and the European authorities probably get some graft out of it, too. Then there is another vessel, and more handling and wharfage and export duties, and the bottle of Old Crow goes through the Panama Canal to an island in the South Pacific Ocean—thousands of miles since it left the distillery! It is unloaded; more stevedores, bond and tax dues, storage and agents at the island branch; and then, by and by, more stevedores again, and the Old Crow is loaded on a schooner and taken nearly four thousand miles to the coast of Mexico.

“There it is trans-shipped aboard the five-master—-and that is a devil of an expense—with heavy breakage and demurrage, and a big expensive crew on the five-master to be paid double wages and messed at a dollar and a half a day. And the Coast Guard indirectly increases the expense of the whiskey, for buying the Old Crow makes Prohibition agents ashore and afloat necessary, and that increases taxes. Presently it goes aboard a sub-chaser—more expense—and is transhipped again, this time to a speedboat off the coast of California … Well, the speedboat takes it ashore to a truck, and the little bottle of Old Crow finally rests for a while in a big wholesale warehouse of one of the shore operators. But not for long. Presently the farmer up in Washington wants his bottle of Old Crow, so he orders it through his bootlegger, and the next morning finds it under his doormat. Now, I wonder if it ever occurs to him that the bottle he is drinking has gone more than half way round the world before reaching him—while it was made in a distillery a few miles from his farm!”

Later, in one of its 1928 interim reports, the Royal Commission explained how the Reifel family managed Joseph Kennedy Limited, a holding company that operated a number of bonded export houses. This holding company shared office space with the Kennedy Silk Hat Cocktail Company in the Gray Block in downtown Vancouver, with Reifel’s sons George and Harry serving as president and general manager. (This particular Kennedy was not Joseph P. Kennedy, father of future US president John F. Kennedy. Vancouver’s Joseph Kennedy was American, but from Missouri, not Massachusetts. Rumours that still circulate have it that the Massachusetts Kennedy may also have been involved with smuggling during US Prohibition.) The report noted that the sole business of Joseph Kennedy Limited was “the export of liquor to the United States” and that there were “a great many irregularities, some of serious nature, in connection with this company.”

The Gray Block, 1206 Homer Street, downtown Vancouver, BC, circa 1928. City of Vancouver Archives, AM54-S4-: Bu N288, photo by W.J. Moore.

When he gave his testimony before the Royal Commission, Henry Reifel candidly admitted to providing nearly one hundred thousand dollars to British Columbia’s provincial political campaigns in 1925 and 1926. He informed the commission that, in return, he didn’t receive any “promises,” although the payments were entered in the company’s financial ledger “as assurances and protection.” Still, Reifel, apparently fully cognizant that his transgressions were now in the public domain, recommended that the commission consider a law prohibiting campaign contributions since his experience was “you never get any return on the money.”

The issue of forged landing certificates had come up in one of the Royal Commission’s interim reports. The commission noted that mother ships departing from Vancouver and Victoria often gave false destinations outside the US, but actually unloaded off the US or Mexican Rum Row. They would bribe corrupt officials at their stated destination to forge papers showing that the cargo was actually unloaded there, then somehow get the forged paperwork back out to the mother ship before it returned to Canada.

As Dave McIntosh described in his history of Canada’s customs service, “The government was not swift to crack down on forged landing certificates, possibly because taxes on liquor provided, as they do today, considerable revenue (in 1929, liquor taxes brought in $60 million) twice as much as the personal income tax.” US Prohibition officials were quick to realize that their efforts to curtail a flood tide of rum running were to be constantly frustrated and blamed it all on the harsh reality that just across the border, the Canadian government looked the other way in order to enrich its coffers from the production and export of liquor. It was only after the final report of the Royal Commission was released that Canada’s federal government passed legislation to make it appear as though it was finally making a more serious attempt to put an end to liquor smuggling. On June 1, 1930, legislation was passed that made it illegal to export liquor to any nation that prohibited the importation of liquor.

Regardless, well-established entities in the trade such as Consolidated Exporters had already made prior arrangements to circumvent the law and were using Papeete, Tahiti, as a transshipment port rather than Vancouver and Victoria. As Revenue Minister W. D. Euler was to inform the Canada’s House of Commons on May 21, 1929, “It is impossible to have wet and dry countries adjacent to each other without a flow from the wet to the dry.” Thanks to its geography, Canada especially benefited from this arrangement. With a four-thousand-mile border adjoining its neighbour to the south and oceans at either end, it indeed proved a smuggler’s paradise.

Seizure of the Schooner Chris Moller

Back in its first interim report delivered on December 3, 1926, the Royal Commission on the Department of Customs and Excise provided “a typical illustration of what is and what has been a practice at the ports of Vancouver and Victoria in connection with the so-called shipments of liquor.” The example it chose to highlight the prevailing type of fraud being perpetrated was that of the wood five-masted schooner Chris Moller. It may be that the commissioners chose this particular mother ship since she had just loaded a substantial cargo of liquor in Vancouver at the time the interim report was wrapping up.

According to the December 28 Daily Colonist article that stated Moller’s cargo was to be seized, “the destination of the cargo, according to declarations made on the ship’s papers, was San Blas, Mexico, but witnesses before the customs commission stated that the liquor was destined for consumption in Los Angeles and California.”

While the newspaper accounts of the day referred to the vessel as Chris Moeller, the Lloyd’s Register of 1924–25 lists her as Chris Moller. Like the Malahat, she was an auxiliary lumber schooner built during the World War I shipbuilding boom, but unlike the Malahat, she was not built in a Canadian yard. At 266 feet in length and built for a Norwegian owner, the Chris Moller was launched from the Olympia Shipbuilding Company shipyard in Olympia, Washington, in July 1917 as the Wergeland.

In the fall of 1917, setting out on her maiden voyage carrying lumber to Norway via Portland, Oregon, Wergeland was battered by heavy seas in a storm off Tatoosh, at the southern entrance to Juan de Fuca Strait, and lost two masts and her deck load while sustaining serious damage to her hull. She was towed back to Port Blakely, Washington, for repairs. Sometime soon after, the schooner was sold off.

According to her entry in the 1921–22 Lloyd’s Register, Wergeland was sold to “Moller & Co (Shanghai) Ltd,” and her flag was British. In February 1924, Archie MacGillis purchased the schooner and had her reconditioned by the Shanghai Dock & Engineering Company. In June of 1924 he registered Chris Moller in China’s big port city under the name of one of his liquor export shipping companies, Iron Bark Exchange. On July 27 she cleared Shanghai for Vancouver.

In 1966, M. P. Olsen wrote to Charles DeFieux, marine editor of the Vancouver Sun, and passed on the tale of how Chris Moller “loaded a cargo of liquor (and Chinamen) in Shanghai” and subsequently got caught in a typhoon and returned to port with a two-foot permanent twist in her hull. After she was dry-docked and repaired, MacGillis went over and put her back in commission. The paper reported that the new boat, with Australian Arthur G. Lilly of Vancouver listed as master, was to carry a liquor cargo to Topolobampo, Mexico, and then return to Vancouver to load lumber for Asia, including “cedar logs for Chinese coffins.” Rumours suggested that the owners were actually planning a wholesale importation of opium and cocaine, as well as whisky, but these were dismissed by many as bogus tales being spread by their rivals in the liquor export trade.

Chris Moller maintained a low profile in the news over the next two years, especially with the capture of other mother ships throughout 1924 and 1925 grabbing the headlines. A short article with a photo of the schooner finally appeared in the June 5, 1926, edition of Vancouver’s Daily Province under the headline: “Will be the Largest Halibut Craft Working on the Fishing Banks of the North Pacific.” The paper reported that the Chris Moller was “being fitted out at the BC Marine yards with four fish-freezing units of seven and one-half tons each, and a cold room with a capacity of 1,000 tons. She will carry thirty fishing dories and a powerful launch tender … All that comes to her nets and hooks will be fish.” MacGillis always had a good story prepared beforehand if he was to be interviewed by the press, so whether Moller was ever fitted out for fish packing is doubtful. (MacGillis always remained cagey regarding his involvement with the liquor export trade. The 1928 edition of Wrigley’s British Columbia Directory indicates that the managing director of Iron Bark Exchange Limited was listed as “A. MacGibles.”) Iron Bark Exchange kept Chris Moller’s Shanghai registry right up until her demise.

Sometime in the final months of 1926, Chris Moller cleared the port of Vancouver with 17,779 cases of liquor aboard imported from Great Britain by Manitoba Refineries, a BC liquor export company. It then called in Victoria to load an additional 3,700 cases, but it was here, alongside the Ogden Point piers in Victoria, that customs officials refused clearance pending an investigation.

Customs and Excise officials had become suspicious, since declarations made on the ship’s papers stated that the cargo’s destination was San Blas, Mexico, which happened to have no port facilities. As it was, the liquor was imported from Great Britain to Vancouver by way of the Panama Canal, past that small village along the Mexican coast on its way north, though it never stopped there.

Chris Moller was seized after American Prohibition authorities informed Canadian officials that the small town of San Blas, Mexico, where the schooner was destined with 55,000 cases of Scotch whisky aboard, had a population just large enough to enjoy fifty-five bottles. Rick James collection.

The customs report concluded that “the alleged consignee (a ‘Mr. Rodriquez’) is fictitious and that it is not intended that the liquors should be delivered [by the Chris Moller] at San Blas, the port of destination, but rather that the same should be made available elsewhere to rumrunners or bootleggers for consumption in the Western states.” Witnesses in Victoria said that the story out on the street was that the liquor was most likely destined for San Francisco and Los Angeles, but had been delivered to Vancouver first, where it went into a bonded warehouse to avoid taxes.

On December 27, 1926, a wire was sent to Collector Fred W. Davey from the acting deputy minister of Customs and Excise in Ottawa, ordering the seizure of the cargo and the subsequent release of the ship. The reason given, according to the December 28 Daily Colonist, was that they had nothing against the ship other than the false declarations that were made in regard to her cargo.

Early in January 1927, The Daily Colonist reported that before the liquor was completely discharged at the Ogden Point docks, thirty-six cases of the cargo “vanished into thin air, but customs officials would, no doubt, like to get hold of the ‘Houdini,’ who managed to cast a spell over the contents of the other ten cases, which have been opened and only broken and empty bottles left.” The next day the paper reported that Chief of Police John Fry and Deputy Chief Harry O’Leary managed to arrest Moller’s Chief Officer Warrington along with “an Italian named Angelo Sposito and Mrs. Marion Sposito for receiving liquor which they knew to have been stolen.”

The Chris Moller was released on an eight-hundred-dollar deposit and on June 4, 1927, departed Vancouver on her next and final deep-water voyage with Arthur G. Lilly as her master. She had a full load of lumber loaded at the H. R. MacMillan mill at Ladysmith on Vancouver Island and was destined for Newfoundland. She arrived in St. John’s on August 23. Once she discharged there, she left in ballast for Antwerp, Belgium, where she was to load liquor. But as M. P. Olsen told Charles DeFieux of the Sun, after arriving in Antwerp on November 1, 1927, and failing to arrange for such a cargo, Chris Moller ran up a heavy shipyard bill, which resulted in the yard seizing the ship and the Canadian government having to foot the bill to return her master, Arthur Lilly, and crew to Canada. As for the schooner herself? She was broken up in Belgium shortly thereafter.