Elmer Irey Gets His Man

Elmer Irey

Elmer Irey
In 1937, Elmer Irey was named chief coordinator of all the Treasury Department’s law enforcement agencies. It was an appointment well deserved. In addition to the high profile cases where he put Al Capone behind bars, solved the Lindbergh Kidnapping, and imprisoned Charles “Lucky” Luciano, he was an effective leader and agent of the Treasury Department. Irey led the Treasury’s Intelligence Unit (where he pursued and convicted tax evaders), Customs Agency Service, Narcotics Unit, the Secret Service, the Alcohol Tax Unit, and the Coast Guard. At the head of these agencies, he coordinated 6-pronged effort to find, capture, and convict federal criminals. Under Irey’s leadership, 64% of all prisoners sent to Federal prison were by the Treasury Department.

Irey continued to be a no-nonsense, understated leader who largely avoided the spotlight, much as he had done as the director of the Internal Revenue Service. However, he was not a man seemingly without ego. He was proud of his work and he felt personal responsibility as perhaps the nation’s leader of law enforcement.

Irey’s work had led to the arrest and conviction the Lindbergh Baby’s kidnapper, Bruno Richard Hauptmann, for first degree murder, resulting in Haupman’s execution by electric chair. Irey was lauded a hero. His use of gold certificates and marked bills indeed led to the capture of Hauptmann. However, Irey was bothered by what he viewed as his personal failure. It weighed heavily on Irey that Linbergh’s baby, Charles, Jr. was murdered, even though the kidnappers were caught. In his mind, it was a blemish to his record to an overall stellar career.

For himself, Irey was a bit restless. Even though his success at the Treasury Department was indeed noted (He would go on to be awarded the Presidential Medal of Freedom), he wondered “What more could he do?” And perhaps the guilt of the Lindbergh murdered gnawed at him. He was unsettled. He sought redemption.

His thoughts turned to a previous nemesis. Yamamoto.

Back in the 1920’s, Yamamoto was viewed as only a sideshow to his target back then – Capone. Certainly, he knew Yamamoto was deeply involved in drug trafficking, which fueled much of Capone’s empire. But, to be distracted by Yamamoto, he knew that he would lose focus on his target and goal – Capone and putting Capone in jail.

As time passed, Yamamoto continued to cross paths with Irey. By 1937, Yamamoto was in his cross hairs. Drug smuggling, illegal imports of Japanese nationals, alcohol tax evasion, mob activity, and possibly counterfeiting intersected with the 6 domains of the Treasury Department that Irey was responsible.

Yamamoto was the new whale that Irey wanted to spear. Irey started an active pursuit of Yamamoto.

J Edgar Hoover

J Edgar Hoover

J Edgar Hoover

It was not only the Treasury Department that was interested and following Yamamoto. The FBI and Office of Naval Intelligence (O.N.I.) were also in pursuit of Yamamoto. Each had kept deep dossiers on Yamamoto. Their interests were related to Irey’s but strikingly different. Certainly, Yamamoto’s crime activities were of interest, but the FBI and ONI had greater concerns – espionage and sabotage.

Personally, J. Edgar Hoover had growing interested and concern over Yamamoto. Beyond gambling, drugs, and prostitution, Hoover knew of Yamamoto’s alliance with Toyama and the Japanese Imperial Navy. Hoover knew of the power and force of the Black Dragon Society and mysterious Sokuko Kai. Hoover feared how the Japanese might unsettle and then enlist the Negro population against America. He knew Yamamoto was the ringleader behind much Japanese espionage and terrorism. The incident at Terminal Island and Ensenada were just the most recent activities of growing concern. Beyond terrorism, Hoover feared Yamamoto was deeply engaged in Japan’s military plans to attack the United States.

The tipping point of concern for Hoover was Japan’s invasion of China in the summer of 1937. Japan had grown even more assertive in Asia and launched an undeclared war on China. The United States attempted to broker restraint by both Japan and China, but Japan continued on an aggressive campaign to take territory in China. Further, Hoover knew the Japanese government was in loose coordination with the Black Dragon Society, even though they sometimes fought with each other. Of noted peculiarity was Toyama’s former alliance with Chiang Kai Shek, who the Japanese were now fighting after Kai Shek broke his alliance with the Russian Communists. Further, Hoover knew the Japanese in America with loyalties unclear were a potential problem. As Asia was being destabilized by Japanese forces, he knew this could boil over in America.

Hoover alerted President Roosevelt. He implored that the Japanese in America were a real threat. Reports from the ONI and the FBI overwhelmingly confirmed this. However, the information was largely classified and hidden from the eyes of the American public (and it was somehow kept out of the newspapers that would likely salivate over the potential story about Japanese spies and terrorists). Roosevelt did not respond definitively. Hoover took this as passive consent and launched his own campaign to get Yamamoto.

Hoover proceeded carefully. Working with the ONI, he knew the potentials of an aggressive and hostile Japan. Much intelligence work was done to understand the political and military agendas of Japan. Covert reconnaissance was escalated. The FBI was tracking every move of the Toyo Club, the Little Tokyo Club, and, especially Yamamoto. Much was known about Japan’s potential plans. Key to its efforts was the ONI’s ability to intercept messaging between the Japanese consulates, Yamamoto, military installations, and government. A United States cryptanalysis project called MAGIC was created to crack the encryption code of the Japanese. Japanese encryption was based on modified ENIGMA machines that Japan had received from the Germans. Through MAGIC, the United States was able to intercept crucial Japanese communications that were encoded. Hoover spent much effort not to “tip their hand” as to how much they knew about the Japanese plans or that they had cracked their encryption codes. This allowed the FBI and ONI to continue to monitor valuable communications with their increasingly likely enemy.
Strained Relationships

Yamamoto’s hands-on activities with engineering and espionage consumed much of his time. It was a difficult balance of increasing these efforts while managing the efforts of gambling, prostitution, fishing/canning, and other activities, which were important underpinnings of his efforts. Fishing operations provided the cover for bringing in munitions and personnel. Gambling provided the bulk of money. Prostitution was still a key mechanism for information gathering. He had delegated much of he day-to-day management of these operations within they Toyo Club to Santos and allowed the Little Tokyo Club to run only loosely coupled to the Toyo Club. While the United States government believed Yamamoto was fully in charge of all the clubs, the clubs continued to be a loosely coupled federation, with Yamamoto largely in charge but the local clubs continued to have much autonomy. In particular, the Little Tokyo Club continued to coordinate much of the mob activity in Southern California.

As suspected Yamawaki was not a strong leader as Sera’s successor. Much infighting among the California clubs ensued. Yamawaki was soon retired and T. Wakatake took over with no better results. Yamamoto wanted to exert more power to stabilize the situation but not take over. Yamamoto now spent much time to stabilize the Little Tokyo Syndicate. The Toyo Club (actually individuals loyal to the Toyo Club) had made inroads into the Southern California. Loyalties were divided. Yamamoto knew a bloody war between the two clubs was eminent. He did not get along well with Wakatake, for Wakatake was weak, not effective, and not respected. Yamamoto arranged for Wakatake to retire and return to Japan. Like all bosses that spent their time at the helm of the Club, Wakatake was rewarded handsomely to retire – Yamamoto had arranged a severance of $300,000 (over $6 million in 2017 dollars) for him. In his place, H. Yamatoda, the head of the Japanese Film Society, assented to the head of the Little Toyko Club. Yamamoto and Yamatoda respected but distrusted each other. It was not like Yamamoto’s relationship with Sera. However, Yamatoda was competent, and the situation with the Toyo Club and the Little Tokyo Club was diffused, at least for the time being.

Meanwhile, in Seattle, Santos was accumulating powers within the Toyo Club. Now running much of the mob operations as Yamamoto was focused on espionage and sabotage, Santos prominence and respect had grown. The gambling, prostitution, and shakedown business, in many regards, was separate from the spy business. While there was indeed much overlap as the mob business funded much of the spy business (as well as Toyama), customers of gambling and prostitution often had no involvement with espionage or sabotage and vice versa. Santos was dissatisfied in that rightfully or wrongfully, he did not get credit for the work that he had done on the “mob” side of the business. Further, Santos was harboring his own resentment of Japan. Namely, Japan’s increasing dominance of the Philippines, his native country, weighed heavily. He knew the brutality of Japan would be coming to his homeland.

Getting Yamamoto

From different perspectives, both Irey and Hoover wanted to contain Yamamoto. Arrest, conviction, and imprisoning (or deporting) Yamamoto were their common goals. Hoover approached Irey to discuss their tactics in how to do so. That said, Hoover was particular sensitive to the position of the ONI – which while Yamamoto’s criminal activities were broad and deep, bringing him to trial on all counts was not in the best interest of the United States. First, the mob activities while brutal and bloody, trials were often times even more messy. They only had to look to the trials of Capone and Luciano for evidence. Charges of treason or aiding and abetting an enemy were problematic because such a trial would expose the intelligence and counter intelligence activities of both the United States government and Japanese government. Exposing US activities was problematic because it would reveal our covert, and sometimes marginally legal, activities, including spying on its own citizens. Exposing Japanese activities would reveal what we knew about the Japanese, including, potentially letting on that we had broken Japan’s encryption codes, preventing future gathering of important intelligence information. Last, a high profile case against a Japanese national would stir outrage of prejudice and racism. To do so, Hoover was concerned with an unpredictable backlash from Japanese Americans and non Japanese Americans alike on grounds of civil liberty violations.

Irey understood and appreciated Hoover’s concern. An approach where a conviction over very narrow charges with maximum penalty was proposed by Irey and most agreeable to Hoover. This would minimize any exposure of the workings of both Japan and the United States in a court of law. And, Irey had a specific proposal – bring charges of tax violations/evasion. It was a tool in Irey’s bag of tricks that he had effectively used in the past, most notably Capone. Further, not only did it play to Irey’s strengths as the head of the US Treasury, it matched his personal demeanor – the no nonsense, hard working, and buttoned-up officer doing his job as a public servant. That said, in contrast to the flashy G-Men, Irey carefully promoted his brand and the Treasury department. By taking approach of using mundane tax code regulations and sifting through mounds of accounting numbers, he could bolster the credibility and visibility of the Treasury Department. (Later in his career, Irey actively participated in Hollywood style movies such as “T-Men” promoting the Treasury Department. Promotion yes, flamboyance no).

Hoover was in full agreement. Tax charges would be the ideal vehicle to bring Yamamoto to justice and neutralize his threat to America. Deportation was perhaps the best outcome, federal prison, like Capone, a close second.

Irey and Hoover went to work. First, Irey sharpened his pencils to take notes and crunch numbers as he dug into the corpus of information that the United States government had collected on Yamamoto. All records from the FBI, ONI, and IRS were pulled. Irey formed a crack team of Treasury agents to pour over the information at hand.

Hoover, with a vast array of field agents, up-leveled the surveillance activities of the Toyo Club, the Little Tokyo Club, suspected Japanese spies in general, and of course Yamamoto. Every club, every fishing boat, every cannery, every spy, every employee, and every brothel came under scrutiny. Covert operations to spy on various elements of Yamamoto were the mainstay of activities. However, the FBI acted even more boldly by directly questioning many of Yamamoto’s associates.

Two men in particular were of special interest to Hoover – H. Yamatoda and Rudy Santos. The questioning of both was informal but forceful. They did not want to bring them up on charges – even though there were veiled threats – they wanted information on Yamamoto. “Good cop, bad cop” tactics were applied – coercion and threats as well as offers for leniency in exchange for information were all part of the dialog with these men. At first, neither revealed much. But, independently, they came to the conclusion Yamamoto was potentially in trouble – there was a “chink in his armor” so to speak. Knowing this, both realized that there was an opportunity for personal gain.

Santos Pays a Visit

February 23, 1938 was a cold blustery morning in Seattle. The ground was slippery from a small layer of snow that had fallen the night before on top of the hardened ice. Santos wore a heavy overcoat, scarf, and gloves. The air was so cold you could see every breath. He walked carefully so not to fall.

He had decided to pay a visit to 1303 Judkins St, a modest, nondescript house at the north end of Beacon Hill in Seattle, just in front of the United States Marine Hospital.

It was the personal home of Yamamoto.

He knew Yamamoto was not there. He arrived at the front door and rang the bell. He had never visited Yamamoto at his home -- a house visit was most unusual as all business was handled at the Toyo Club on Weller Street. He wondered if anyone would answer. Indeed, Yamamoto’s wife, Helen, opened the front door. She was smartly dressed in an apron, holds a dishcloth, and had obviously been working in the kitchen. She wiped her hands dry as she peered out to see Santos.

“Yes?” She asked. She then recognized the man. “Hello, Mr. Santos.”

“Is Kimpachi in?” Santos asked, even though he knows the answer.

“No. But he should return shortly. Would you like to wait?”

“Yes, please.”

Santos entered. He removed his hat, coat, and gloves and hung them on the coat tree at the entrance of the house. Because house visits were out of protocol, Mrs. Yamamoto was uneasy. Though she invited Santos to the kitchen for tea, while she proceeded to clean, after breakfast. When his tea was ready, she poured him a cup and turned to put it on the table. She lookedup to Santos and then down to the table, where she sees Santos had placed the bloody gun, pointed in her direction. Helen ignored it and continues to wipe down the kitchen countertops. When she got to the table, she wiped that down too but carefully wiping all around the bloody gun. She was too frightened to touch it or inquire about it.

Santos took a sip of tea. A few minutes passed over an awkward silence. Then, without saying more, Santos stood up and asserted that he must leave. He walked back to the front door, gathered up his belongings from the coat tree, and he let himself out the front door without saying another word. But he left the gun.

Helen was shaken by the incident. Fortunately, Yamamoto returned home shortly. Helen greeted her husband and informed him: “Rudy Santos was here,” she stated in a very concerned way. Yamamoto saw the bloodied gun.

It was a symbol. Santos was openly disrespecting Yamamoto and challenging him. A bold affront to his wife was perhaps the most defiant of all actions he could take. Yamamoto considered the moment and the action. He contemplated what his counter-action will be.

Santos was calm as he drives away. He was fully aware of the seriousness of the calculated action he had just taken. With federal field agents up in his business to get to Yamamoto, he knew there was trouble from the United States government, but mostly for Yamamoto. Where there was trouble there was opportunity reasons Santos. Coupled with his own growing influence (perhaps perceived only in his own head) and Yamamoto’s struggle with Yamatoda for control of the Little Tokyo Club syndicate, Santos saw how Yamamoto’s problems could be his gain. If the feds came down on Yamamoto, the power vacuum created was just the opportunity he needs. And, because it would be the result of external forces, not an internal power struggle, an opportunity for a smooth and unified ascent to control the Toyo Club was possible. The feds only needed a little help.

Upon leaving, Santos knew precisely what he had to do next. First, he contacted H. Yamatoda in Los Angeles. In a short telephone conversation, he communicated cryptically that Yamamoto was in trouble. “Can you help?” he asked ambiguously. Yamatoda understood the subtle but clear message. While Santos made his way to the local FBI office in Seattle, Yamatoda was doing the same. Acting nearly simultaneously, both reported Yamamoto to federal agents, attributing all activities to him – gambling, prostitution, drugs, espionage, sabotage. They’ve thrown Yamamoto under the proverbial bus. Santos did not know what Yamamoto’s specific response will be, but he was certain it will be violent with his murder only an artifact of the trouble that will reign. So, he immediately went into hiding.

Arrest, Indictment, Conviction

The FBI acted quickly on the information they had received from Yamatoda and Santos. Together with the Treasury Department, the FBI had all ready built a case against Yamamoto, but it was flimsy, mostly based on income tax filings from 1935. Even though Yamamoto had given statements to the FBI on January 14, 1938, they did not believe it had enough information to indict and convict him. With statements from Santos and Yamatoda, they had information to support their charges of tax fraud. However, the additional information on criminal and subversive activities could provide the necessary leverage on Yamamoto to get him out of the country, though the FBI did not really want to level those charges. On Febuary 24, 1938, Yamamoto was arrested by the FBI working in conjunction with the IRS and the United States attorneys office. The charges made were that he owed $6,428.20 in income tax when he only paid $50.16 on $29558.27 of income. He was released on a $25,000 bail bond.

On March 10, 1938, he was indicted on two counts of income tax evasion; one for 1935 and the other for 1936. A flurry of subpoenas were issued following the indictment – bank records, tax records, and other documents were requested as well as appearances of many operators -- typically club heads, in the Toyo Club and Little Tokyo Club networks. Accounting books and other artifacts were in seized in hastily executed raids of clubs from Seattle to San Diego. In the end, as suspected, the information collected on Yamamoto painted a picture of a wide scale mob operation and even more incredible espionage and sabotage efforts. But the FBI and IRS, under the direction of Hoover and Irey, stuck to the strategic plan, and only continued in their case of a relatively small case of tax evasion.

On May 14, 1938, Yamamoto was convicted of 2 counts of the indictments and sentenced to imprisonment for two concurrent terms of eighteen months on the United States Penitentiary of McNeil Island. Further a fine of $1000 on the first count and $2000 on the second, both of which much be paid before being released from Prison. Court costs and income tax due must also be paid, the judgment stated. Upon his conviction, Treasury Department agents swooped down on the Toyo Club on Weller St and seized $5,000 from the Club to pay for Yamamoto’s past taxes. The agents claimed that the money belonged to Yamamoto over the objection of the Club whose claim it belonged to the Club.

On May 16, 1938, Kanekichi Yamamoto entered the United States Penitentiary on McNeil Island, where he began serving his term of 18 months. Irey and Hoover had successfully incarcerated Yamamoto removing him as a threat to the United States and getting a powerful but rarely seen criminal of the streets of America.

Two questions remained; what would happen to the espionage and sabotage efforts that were led by Yamamoto? With Yamamoto gone, Yamatoda was freed from being lorded over by the Toyo Club. However, Yamatoda never improved as an operator and the syndicate broke down into individual clubs, rendering them less powerful. In the fall of 1938, a group of New York Japanese gamblers, headed by Kamenosuke Yuge united with Mutsui Tagawa, a west coast gambler, to oust Yamtoda and rebuild the Little Tokyo syndicate. With the help of Los Angeles police officers, Yuge arranged for Yamatoda to be arrested. The police ordered Yamatoda to leave Los Angeles and return to Japan within three months. In December of 1938, Yamatoda was kidnapped and taken to Mexico. Yamatoda escaped and returned to Los Angeles to press charges against Yuge and his men. Yuge and his men were indicted in September of 1939 but never convicted, as Yamatoda fled to Japan in April of 1941, to avoid his own prosecution of murder charges. Yuge and others were convicted on conspiracy charges and confined to McNeil Island.

In the end, the Little Tokyo Club was in shambles and a shell of its former self. Violence due to the mob business had curtailed and the espionage and sabotage efforts diminished. However, the United States remained on alert, fearing the Little Tokyo Club network could easily be pulled back together and previous operations restored.

As for the Toyo Club, Santos had indeed risen to take control of most operations. In reality, Santos was operating as he was previously but not under Yamamoto. The espionage and sabotage business was of little interest to Santos – as a Filipino national he had no motivation, ability, or reward to get involved with Japan’s Pan Asia efforts or desire to infiltrate the United States or the Americas in general. In fact, Santos had reasonable concerns, distrust, and hatred of the Japan – he speculated that his homeland, the Philippines, was likely just another target for Japan’s brutal and aggressive take over of Asia. Indeed, on December 8, 1941, only three years later, Japan invaded the Philippines, merely 9 hours after their infamous attack on Pearl Harbor.

The second question was, what would happen to Yamamoto after 18 months? Even after his sentencing, it was possible that Yamamoto was orchestrating the demise of Yamatoda, as he knew that Yamatoda betrayed him. He was a feared operator behind bars. Both Hoover and Irey knew that if released, it would likely be easy for Yamamoto to resume his previous activities. They knew deportation, even though Yamamoto was deemed legally to reside in the United States would be a far better option. It seemed, to both Yamamoto and Hoover, 18 months was not such a long time. However, Yamamoto changed his mind after speaking with a fellow Italian inmate who was sentenced to an 18 months at McNeil Island, but was serving a 50-year term on McNeil Island. His fellow inmate advised that while he too was only convicted for 18 months, the government had mechanisms to keep him longer. It was likely he’d spend the rest of his life behind bars. That was not appealing to Yamamoto. In fact, Hoover was actively working to make this happen. With that conclusion, Yamamoto suspected that if he offered to return to Japan, his sentence would be commuted. Uncertain of the mechanisms to do so, Yamamoto appealed directly to President Roosevelt. With the support of Hoover and Irey, Roosevelt accepted Yamamoto’s request and was released on the grounds that he return to Japan. However, it was conditioned on him paying the $3000 penalty that he still owed.

Irey, with the help of Hoover, thwarted the efforts of perhaps the most feared man in the United States.

Irey had gotten his man.

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