The Chair may observe, since we are considering the two bills, it would be well to get a report from the interested agencies concerning H. R. 6736, just as we have concerning S. 3357.

Mr. PRESTON. Mr. Chairman, in that connection, I would like to say that I think the reason the Department of Justice has not reported on H. R. 6736 is that the bills have a common intent and the preparation of a similar bill was in process by the Department of Justice, and I am, of course, appearing in support of both bills.

Mr. LINEHAN. Mr. Chairman, may I inquire what particular reports have been submitted on the Senate bill?

Mr. BECKWORTH. The Department of Justice has submitted a report on the Senate bill and I believe that is the only report which has come in connection with the Senate bill.

The Interstate Commerce Commission submitted a report in connection with H. R. 6736 last January. The Federal Trade Commission in February submitted a report in connection with H. R. 6736. Those are the only reports we have.

You may proceed, Mr. Preston.

Mr. PRESTON. Mr. Chairman and members of the committee, I am informed that the committee has under consideration H. R. 6736, of which I am author, and S. 3357, both of which deal with the same general subject matter of interstate shipment of gambling devices. Your timely action in turning your attention to this subject during these extremely busy days in Congress emphasizes the importance of this hearing, and agencies and citizens supporting law reform in this field will become much encouraged by your interest.

Before commenting on the merits of the two bills before the committee, both of which have my approval, I beg the indulgence of the committee to give a brief history of the slot-machine racket and its far-reaching operations. In relating this history I will offer some proof of its fantastic take in dollars annually.

It is hoped that the startling facts I have assembled over a 2-year period will establish to your satisfaction the need for the enactment of one of these measures. There is certainly not the least reservation in my mind about the acute importance of taking congressional action to strike at this cancerous situation. State sentiment has reached the peak it reached in 1890 and in 1895 when the national policy against lotteries had been formed in the States by their laws and constitutions, and Congress was asked to enact Federal laws to close the loopholes in interstate and foreign commerce in aid of that policy.

The first slot machine was invented by one Charles Fey in San Francisco in 1895. It was improved in 1906 by Stephen Mills, and a company in Chicago bearing his name is the largest manufacturer of those machines today. The popularity of this gambling device resulted in the establishment of 10 large concerns engaged in the manufacture of slot machines and all of them are located in Illinois.

With the rapid spread of this 5-cent-to-$1-type of gambling, law enforcement agencies sought the enactment of measures to ban them. They soon realized that the one-armed bandit was paying the way for many other criminal enterprises. It was the quickest means by which a hoodlum could get into business. A second-hand machine could be bought for less than $100 and would pay for itself in a week to 10 days. Every State in the Union has wrestled with this problem and I think it can be safely said that it still remains one of the most serious problems confronting State governments.

Thinking that legalization would put the problem under legal control, several States tried this method. Florida made them legal by licensing them in 1935, but the next session of the legislature in 1937 repealed the law. Legitimate business felt the drain of dollars away to the slot machines. Louisiana, during Governor Huey Long's regime, legalized them, but economic distress and racketeering caused them soon to be banned again.

Idaho passed a legalizing act in 1947 on a local-option basis, but in 1949 the cities of Twin Falls, Boise, Nampa, and Rupert revoked all licenses, and on January 4, 1949, Gov. C. A. Robins asked the legislature to repeal the law, stating that "The State of Idaho cannot gamble itself into prosperity." The city commission of Twin Falls, Idaho, stated in their report that licensing slot machines resulted in an increase of armed robberies, and that relief agencies had growing rolls. Businessmen in this city reported an increase in overdue accounts.

The State of Nevada has legalized gambling of all types. Washington and Montana permit slot machines in private clubs, and Maryland legalized machines in two counties. Elsewhere in the United States they are illegal, but yet they operate in every State in the Union.

The best crime authorities in America have contended that this lawdefying situation exists because of the sinister and subtle operation of a vast syndicate from coast to coast.

The second progress report of the California Crime Study Commission on organized crime states on page 38:

Somewhere near the top of the slot-machine racket is Eddie Vogel, of Illinois, a member of the Capone syndicate of Chicago. Vogel was originally given the slot-machine concession of Cook County, Ill., by Al Capone himself. Since that time Vogel's control of the slot-machine racket has spread to many other States. Associated with Vogel is George (Babe) Toneneili, a racketeer from Blue Island, Ill. It has been reliably reported to the commission that in the summer of 1947 Toffenelli attempted to purchase a string of slot machines and juke boxes in the San Joaquin Valley, valued at $195,000, by offering that amount in cash. It is claimed that this offer was refused. But, again, it illustrates the interest of the Eastern hoodlums in the lush profits in th rackets in California.

This crime report on conditions in California is indeed a very enlightening discussion on the slot-machine racket and I commend it to the committee for study in connection with this legislation. This report describes a convention of coin-machine operators held in Chicago in January 1949, with representatives from every State in this country and from 16 foreign countries. Undercover agents for the Crime Commission reported interesting discoveries which lead them to report that:

From these extraordinarily frank discussions of corruption, the commission's investigators ascertained that it is the common practice of slot-machine operators throughout the country to pay 10 to 20 percent of their gross profit for protection and graft, although the method of payment varies according to local circumstances. If the gross "take" of the national slot-machine racket is in the neighborhood of $2,000,000,000 annually, as it probably is, it is evident that 20 percent of this amount, or $400,000,000, is being spent annually by the slot-machine racketeers for bribery and corruption of public executive officers, and that additional large amounts are being spent on a corps of lobbyists and a legal and public relations staff.

On page 59 the following paragraph is also found:

It is perhaps worth noting that actual investigations in the field tend to corroborate the statement that approximately 20 percent of the gross profit is paid

by slot-machine operators for protection and graft. For example, the Chicago Crime Commission has informed us that authentic records of slot-machine operations in Cook County, Ill., exclusive of the city of Chicago, show for the month of July 1941 (the only month for which complete records are available), a gross profit of $126,921, of which $24,480, or approximately 20 percent, was paid in graft. Similarly, in the Mandocino slot-machine trial, the evidence showed that the 50-50 division of gross profit between the operator and location owner, which had obtained prior to the organization for graft, was changed to a 40-40 division, the remaining 20 percent being taken off the top for protection. In Santa Cruz County, had the proposed organization of operators gone successfully, it would have realized approximately 20 percent of the gross profit for protection purposes. Virgil Peterson, former FBI agent and now operating director of the Chicago Crime Commission, and one of the leading authorities on crime, has linked the Combination, Murder, Inc., the Capone syndicate of Chicago, and the Bug and Mayer mob with the slot-machine racket. This criminal brain trust poses a difficult problem for State authorities to deal with. Nothing short of concerted effort can cope with such a syndicate. Undoubtedly J. Edgar Hoover had this strong criminal alinement in mind when he said early this year that, "There is considerable merit to outlawing interstate shipment of slot machines."

There is ample precident for the passage of this legislation. The Congress has heretofore enacted laws to aid the States dealing with such vital subjects as lotteries, narcotics, auto theft, and many others. Whenever interstate commerce becomes a means of furthering criminal conspiracies, Congress has taken steps to plug the loopholes and there has been nothing but the best of relations between State and Federal law enforcement and investigative agencies. As one who is a vigorous supporter of the States' rights doctrine with the least Federal intervention, I recognize in the slot machine racket a national problem which can be solved only by proper Federal statutes striking at the source of supply. Realism impels me to admit that shortcomings on the part of some local law enforcement agencies have resulted in the slot machine situation getting completely out of hand. It is a sad commentary, but nontheless true.

What is the annual cost of this racket? The Chicago Crime Commission says three billions annually, the California Commission says two billions annually, and the highest estimate by the Coin Machine Institute is about one billion per year. Any estimate is speculative, but the State of Washington established from tax sources that the average machine netted $2,680 per year. In 1949 Federal tax was paid on 69,000 machines, but there are likely twice this number in operation. If the annual take from this racket went into proper channels it would be one thing, but actually it pyramids into other illegal enterprises and the net result is more criminals, more corrupted officials, more crime, and mounting law enforcement costs, all of which means danger to our society.

H. R. 6736 simply prohibits interstate shipment of slot machines. This would force the manufacturer into some other business. S. 3357, passed by the Senate on the Consent Calendar, after unanimous committee action, differs slightly in that it exempts States where slot machines are legal from provisions of the law. Either of the bills would solve the problem and strike the most telling blow at organized crime yet felt by it.

The committee's patience in hearing me on this important legislation is deeply appreciated. I have much more information on the

subject, and if the committee would care to hear me orally on it I will be indeed glad to go further into the subject and would be glad to answer any questions the members of the committee might have to ask.

Mr. BECKWORTH. Any questions?

Mr. ROGERS. I would like to make an observation, Mr. Chairman.

I just want to commend the distinguished gentleman from Georgia for this fine history of the racket of the slot machines and for his courage and interest in the people in introducing this bill.

I am glad to say that Mr. Preston represents the district in which I was born and I know that he represents fine people, and I know that the people of this district appreciate what Mr. Preston is doing here

now.

I want to say further that I was a member of the house of representatives in Florida that outlawed the one-armed bandit, slot machine, and we did away with it in Florida, and it is illegal now to operate or have in possession a slot machine. What the gentleman says is correct, because you can see them at certain spots, and it might be good if the Federal Government could cooperate in prohibiting the shipment of these one-armed bandits in interstate commerce and certainly would be a means of stopping them, and I am sure that those of us who have seen slot machines operate, where they do operate, and know of the amount of money that they get from the children who need the money for lunches and for something to eat, I am sure that all of us could give our support to this legislation. At least I hope we shall.

Mr. PRESTON. Thank you.

Mr. ROGERS. And I am sure that the people really appreciate your services here, Mr. Preston.

Mr. PRESTON. Thank you very kindly.

Mr. BECKWORTH. Any question?

Mr. HALE. I just want to ask Mr. Preston if he would be good enough to repeat the list of States in which the machines are not illegal.

Mr. PRESTON. Yes, sir. All types of gambling are legal in the State of Nevada.

In the States of Washington and Montana slot machines are permitted in clubs only. The State of Idaho

Mr. HALE. What type of clubs?

Mr. PRESTON. I am not familiar with the types. I presume country clubs and other clubs.

Mr. SCOTT. If I may interject, I have seen those clubs in Montana. There are about five or six of them to every city block. They are nothing in the world but stores and places of amusement with a very small admission fee. You walk in and you are a member of the club. Mr. PRESTON. Thank you, Mr. Scott, for that contribution.

In the State of Idaho they have been legalized on a local-option basis and each community can by referendum determine whether they care to legalize the machines, and as I mentioned, several of the cities have repealed their action legalizing them in their respective communities.

68519-50-2

Now, in the State of Maryland they are legal in two counties, and that concludes the list. Elsewhere in the United States they are against the law.

And, gentlemen, I may say that we have a variety of laws on the statute books in the various States. Some of them are weak; some are strong.

The most effective law in existence in the United States on this subject is in the State of Wisconsin and the only way they could deal with it was by taking the enforcement out from under the county sheriff and putting it into the hands of the State treasurer who has jurisdiction over tobacco and alcoholic licenses, and the penalty was not a fine and imprisonment, but the penalty was revocation of license to operate; revocation of his alcohol license or food license. Consequently the operator of an establishment would not jeopardize his license to operate a barroom or a restaurant in order to have slot machines.

Now, the next and most effective seems to be in the State of Minnesota, and very recently in California, after a long and hard fight where they enacted a law which would plug many of the loopholes in the State of California. In California this has been a very serious problem and it has been very serious in Illinois.

Mr. HALE. There are only five States then, in which they are legal in any degree and in four of the five they are legal only under certain conditions.

Mr. PRESTON. That is correct.

Mr. HALE. In the other 43 States there must be very widespread evasion. Is that a fact?

Mr. PRESTON. That definitely is true, and I wish each member of the committee had had an opportunity-some of you perhaps have hadto have read Collier's magazine and read these articles appearing in Collier's magazine describing the way this is evaded in the various communities. In one county-and I dislike to speak of any one particular State repeatedly, because I certainly have situations in my State which are just as deplorable, and I am not pointing a finger of guilt at any particular State-but in this particular State the sheriff-and repeated instances are given in these articles-the sheriff just said, "So what?" when asked about these illegal slot machines. It shows how States' attorneys are powerless to cope with it.

Governor Stevenson ran for election on a platform to clear gambling out of the State of Illinois, and he tried to do so; but he was absolutely unable to do so, and he says, to quote him, his No. 1 problem is gambling.

The trouble is the same trouble which we had when Congress had to pass an alcohol-tax law. You cannot get the law-enforcement agencies to cooperate to the extent necessary to wipe out an evil that is a serious threat to our society.

These articles tell of many instances, and give authenticated cases, where marriages have been disrupted merely because of the slotmachine habit being formed by either a man or his wife. They tell of the numbers of children who play these machines. They tell of soldiers and cite one instance, and give the percentage of all of the disability payments which the soldiers got which went into these slot machines. There is an enormous amount of it.