The Scarface Files

March 12, 2008 8:56:30 PM PDT
Infamous Chicago gangster Al Capone may have been the nation's most notorious tax cheat but for 75 years Capone's IRS records were never made public.Al Capone, New York Governor Eliot Spitzer and baseball star Barry Bonds have one thing in common - their careers were all torpedoed by the same federal agency: the Internal Revenue Service.

As the Spitzer and Bonds cases unfold, the I-Team examines "The Scarface Files" in public for the first time since Capone was convicted in 1931.

The slashes across Al Capone's left cheek were from a barroom fight over a teenage girl; not from World War I combat as Capone told it. But it was the IRS that left the deepest scar on Chicago's boss of bosses following a money trail to the biggest tax evader in U.S. history. "Only an accountant" could catch Capone, boasts a display at Chicago's IRS headquarters.

"It took an undercover agent to do this," said Robert Fuesel, ex-IRS investigator.

Fuesel worked with the IRS agent who had gone undercover in Capone's gang. Mike Malone was an Irishman who masterfully infiltrated Capone's Italian gang, collecting the financial evidence that would finally bring down Scarface.

"There's so much misinformation out there that it was Eliot Ness and the 'Untouchables' or the FBI was responsible for stopping Capone when actually it was the IRS and Malone. Maybe it was that fact that caused the documents," said Fuesel.

It is the untold story of Al Capone - 90 pages typewritten by the federal agents who eventually sent him to the crossbar hotel on Alcatraz Island and only just released by the IRS after a Freedom of Information Act request from a Capone historian.

"Al Capone is a punk hoodlum who came to Chicago from New York about 1920," the file states.

The once-secret IRS records chronicle Capone's rise and fall, his conviction, not for the St. Valentines Day massacre or other gangland hits, but for evading U.S. income taxes on the illicit millions he made.

"Al Capone never had a bank account and only on one occasion could it ever be found that he endorsed a check?all his financial transactions being made in currency," the file states.

"They pinned to him what they could but um there was a lot more they couldn't," said John Binder, author, "The Chicago Outfit."

UIC professor and Capone historian Binder wrote the book on the Chicago Outfit.

"You get a feel for what the IRS guys were thinking themselves, um, their sort of personal remarks, that this was very hard, at times, we had no idea we could get this done," said Binder.

When news jockey Geraldo Rivera once blew open Capone's basement vault on TV, it was found to be empty. The Scarface Files are a treasure chest of information about what it was like for federal agents trying to connect Capone's income to bootlegging, gambling and prostitution even as they became targets for murder.

"That Al Capone is shrewd there is no doubt-together with his native Italian secretiveness has made this a most difficult case to handle," one file states.

"Whoever wrote that, um, definitely wasn't too worried about people's ethnic sensibilities or their personal sensibilities," said Binder.

The once-confidential government memos describe how suburban Cicero became an oasis for Capone's "vicious crime organization" in the 1920s, operating from the Hawthorne smoke shop and alleyway garages, the mob splitting some of the pot with Cicero officials.

"The 2 Capone henchmen get 18-percent and 5-percent. His brother gets 5-percent. Cicero town officials get a 20-percent payoff and Capone himself gets 52%," one file states.

"Things that were going on were only going on because town officials were bribed. They literally took the town of Cicero over and held on to it for years," said Binder.

Release of "The Scarface Files" is unprecedented because of confidentiality laws. The IRS has always fought to keep tax records private. But recently IRS officials decided there were no privacy issues with Capone because he never filed a tax return.

The following are copies of reports and letters from the actual Internal Revenue Service file which summarize the events and activities of the three year investigation of Al Capone.

Letter dated July 8, 1931, from W.C. Hodgins, Jacque L. Westrich, and H.N. Clagett, all Internal Revenue Agents, to the Internal Revenue Agent in Charge, Chicago, Illinois, in re Alphonse Capone, 7244 Prairie Avenue, Chicago, Illinois.

Summary Report dated December 21, 1933, prepared by Special Agent Frank J. Wilson at the request of the Chief, Intelligence Unit, Bureau of Internal Revenue, Washington, D.C., in re Alphonse Capone, Lexington Hotel, 2300 Michigan Boulevard, Chicago, Illinois.

Letter dated March 27, 1931, from Special Agent Frank J. Wilson to the Chief, Intelligence Unit, Bureau of Internal Revenue, Washington, D.C, providing an update on the status of the "Capone investigation."

Letter dated April 8, 1931, from Special Agent Frank J. Wilson to the Chief, Intelligence Unit, Bureau of Internal Revenue, Washington, D.C, providing an update on the status of the "Capone investigation."

Excerpt referencing Al Capone from "A Narrative Briefly Descriptive of the Period 1919 to 1936." This was a report prepared on the organization, functions and activities during that time period by Elmer Irey, Chief, Intelligence Unit, for the IRS Commissioner, Bureau of Internal Revenue, Guy T. Helvering.