1838 Martin Van Buren - Defalcation of Samuel Swartwout

In 1838, Secretary of Treasury Levi Woodbury reported to Congress that the former collector of New York Samuel Swartwout was more than $200,000 short in his accounts. After Congress investigated that amount turned out to me over $1 million, or about $34 million in 2024 dollars. Congress was furious, and President Van Buren had to face them knowing that his predecessor Andrew Jackson had appointed Swartwout to the post. In the Secretaries report, Woodbury reported that "it is not apprehended that any losses will ultimately be sustained from them except in the case of the former collector of New York. And in this case the "defalcations are supposed to have been continued for many years, and to have reached a large amount" Secretary Woodbury promised to follow up. He wrote, "It is intended to make the particulars of this case the subject of a special report to the President for the consideration, of Congress".

Samuel Swartwout served as collector of New York from 1829 to 1837 .  The New York customhouse annually contributed more than one-half of the entire U.S. Treasury's funds, and it was not unusual for collectors to withhold a portion of their funds during their service to cover liabilities. Collectors were personally liable for assessments of bonds and had to pay any legal suits against them out of their own pockets. At the end of Swartwout's last quarter of service, his account was short $221,907.36 and as reported by the Secretary of Treasury, it was not expected that he would be able to cover this shortage. 

A shortfall of that amount raised eyebrows and President Martin Van Buren astutely recommended to Congress that they consider whether "whether a committee of Congress might not be profitably employed in inspecting, at such intervals as might be deemed proper, the affairs and accounts of officers intrusted with the custody of the public moneys."  Van Buren suggested that such a committee could report on the officers who were in custody of public monies and report any "such defalcations as were found to exist". If these defalcations could not be satisfactory accounted, then ultimately the officer should be removed. Such periodic report, under the supervision of the Executive along with prosecution and punishment of any breaches of trust, was the best way to keep the safekeeping of public monies on a "surer foundation than it has ever occupied since the establishment of the Government."  President Van Buren reiterated the Treasury Departments promise to provide additional information and urged Congress to deliberate on the best way to return to the " simple self-denying ordinances of the Constitution" that would keep the public monies separate from the advancement of private interests. Here are the words of President Martin Van Buren in his second state of the union address.

A change in the office of collector at one of our principal ports has brought to light a defalcation of the gravest character, the particulars of which will be laid before you in a special report from the Secretary of the Treasury. By his report and the accompanying documents it will be seen that the weekly returns of the defaulting officer apparently exhibited throughout a faithful administration of the affairs intrusted to his management. It, however, now appears that he commenced abstracting the public moneys shortly after his appointment and continued to do so, progressively increasing the amount, for the term of more than seven years, embracing a portion of the period during which the public moneys were deposited in the Bank of the United States, the whole of that of the State bank deposit system, and concluding only on his retirement from office, after that system had substantially failed in consequence of the suspension of specie payments.

The way in which this defalcation was so long concealed and the steps taken to indemnify the United States, as far as practicable, against loss will also be presented to you. The ease is one which imperatively claims the attention of Congress and furnishes the strongest motive for the establishment of a more severe and secure system for the safe-keeping -and disbursement of the public moneys than any that has heretofore existed.

It seems proper, at all events, that by an early enactment similar to that of other countries the application of public money by an officer of Government to private uses should be made a felony and visited with severe and ignominious punishment. This is already in effect the law in respect to the Mint, and has been productive of the most salutary results. Whatever system is adopted, such an enactment would be wise as an independent measure, since much of the public moneys must in their collection and ultimate disbursement pass twice through the hands of public officers, in whatever manner they are intermediately kept. The Government, it must be admitted, has been from its commencement comparatively fortunate in this respect. But the appointing power can not always be well advised in its selections, and the experience of every country has shown that public officers are not at all times proof against temptation. It is a duty, therefore, which the Government owes, as well to the interests committed to its care as to the officers themselves, to provide every guard against transgressions of this character that is consistent with reason and humanity. Congress can not be too jealous of the conduct of those who are intrusted with the public money, and I shall at all times be disposed to encourage a watchful discharge of this duty.

If a more direct cooperation on the part of Congress in the supervision of the conduct of the officers intrusted with the custody and application of the public money is deemed desirable, it will give me pleasure to assist in the establishment of any judicious and constitutional plan by which that object may be accomplished. You will in your wisdom determine upon the propriety of adopting such a plan and upon the measures necessary to its effectual execution. When the late Bank of the United States was incorporated and made the depository of the public moneys, a right was reserved to Congress to inspect at its pleasure, by a committee of that body, the books and the proceedings of the bank. In one of the States, whose banking institutions are supposed to rank amongst the first in point of stability, they are subjected to constant examination by commissioners appointed for that purpose, and much of the success of its banking system is attributed to this watchful supervision.

The same course has also, in view of its beneficial operation, been adopted by an adjoining State, favorably known for the care it has always bestowed upon whatever relates to its financial concerns. I submit to your consideration whether a committee of Congress might not be profitably employed in inspecting, at such intervals as might be deemed proper, the affairs and accounts of officers intrusted with the custody of the public moneys. The frequent performance of this duty might be made obligatory on the committee in respect to those officers who have large sums in their possession, and left discretionary in respect to others. They might report to the Executive such defalcations as were found to exist, with a view to a prompt removal from office unless the default was satisfactorily accounted for, and report also to Congress, at the commencement of each session, the result of their examinations and proceedings. It does appear to me that with a subjection of this class of public officers to the general supervision of the Executive, to examinations by a committee of Congress at periods of which they should have no previous notice, and to prosecution and punishment as for felony for every breach of trust, the safe-keeping of the public moneys might under the system proposed be placed on a surer foundation than it has ever occupied since the establishment of the Government.

The Secretary of the Treasury will lay before you additional information containing new details on this interesting subject. To these I ask your early attention. That it should have given rise to great diversity of opinion can not be a subject of surprise. After the collection and custody of the public moneys had been for so many years connected with and made subsidiary to the advancement of private interests, a return to the simple self-denying ordinances of the Constitution could not but be difficult. But time and free discussion, eliciting the sentiments of the people, and aided by that conciliatory spirit which has ever characterized their course on great emergencies, were relied upon for a satisfactory settlement of the question. Already has this anticipation, on one important point at least--the impropriety of diverting public money to private purposes--been fully realized. There is no reason to suppose that legislation upon that branch of the subject would now be embarrassed by a difference of opinion, or fail to receive the cordial support of a large majority of our constituents.

On December 31st, the House of Representatives adopted a resolution inquiring of the Secretary of the Treasury why they could not ascertain the defalcation of the late collector of New York when it first began in 1830 and at periods after that. Congress wanted to know " why it was not in the power of the Secretary of the Treasury to ascertain, by means of the weekly and monthly returns, and other records in his office, the defalcation of the late collector of New York, when it first commenced, or at the different settlements afterwards, before his term of office expired". They requested that the Secretary Treasury explain this and include details of the books and the audits of the collector of New York, Samuel Swartwout. In his response, Secretary Woodbury suggested that "Congress should establish more efficient safeguards, to require the First Auditor to make returns each week of the balances of the different accounts rendered to him for settlement, and also of the balances each week found to be actually due." If Congress passed such laws, then such a process might lead to a detection of defalcation. Several letters were exchanged between Congress and the Secretary of Treasury. Meanwhile, Samuel Swartwout left for Europe. Congress continued to investigate, and they discovered that a total of $1 million was missing. Congressional hearings were held, but no arrests were made. Eventually, Swartwout was allowed to return to the United States, but only after he forfeited his personal properties. To this day, there are questions about whether Swartwout stole the money or if he was set up by his subordinates. 

Resources

"Second Annual Message." Second Annual Message | The American Presidency Project, 3 Dec. 1838, https://www.presidency.ucsb.edu/documents/second-annual-message-4

United States. Department of the Treasury. "Report on the Finances, December 1838," Annual Report of the Secretary of the Treasury on the State of the Finances (1838). https://fraser.stlouisfed.org/title/194/item/5483, accessed on November 22, 2024.

United States. Department of the Treasury. "DEFALCATION OF SAMUEL SWARTWOUT, "Letter From The Secretary of The TReasury (1838). https://www.govinfo.gov/content/pkg/SERIALSET-00346_00_00-040-0069-0000/pdf/SERIALSET-00346_00_00-040-0069-0000.pdf, accessed on November 23, 2024.

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