Remembering the Fed’s fight against cancelled stamps

There’s little doubt that banking has changed dramatically from what it was 85 years ago. Then, myriad institutions did little more than take in deposits, paying 3 percent interest, and loan it out at 6 percent interest. Many banks closed for a period in the early afternoon so tellers could balance their ledgers, and institutions often closed up shop completely on Wednesday afternoons.

Today, bankers find themselves facing threats unimaginable even a quarter century ago. In addition to watching for money laundering, they must ensure their technology isn’t compromised by hackers, abide by government regulations such as suspicious activity reporting and stay on top of how criminals and terrorists are using electronic payment methods and prepaid cards.

Just as the job of banks was once much simpler, so was that of Federal Reserve Board, which oversees the Federal Reserve Banks.

To show how much things have changed over the past few generations, consider an issue the Federal Reserve Board saw fit to address in 1929: Misuse of cancelled stamps.

Then-Postmaster General Walter F. Brown wrote Roy A. Young, governor of the Federal Reserve Board, in July 1929 to urge that Federal Reserve Banks stop selling cancelled postage stamps to stamp collectors. The different Fed Banks throughout the country had been taking used postage stamps from received mail and selling them to stamp dealers and others for a fee of $10 a month.

A group of entrepreneurially minded criminals got ahold of the higher-denomination stamps, “washed them” of their cancellation marks, and then reused or resold them.

The government was “losing an enormous amount annually in postal revenue through the reuse and resale of precanceled postage stamps,” Brown wrote to Young.

And if there’s one thing the government won’t tolerate, it’s being cheated out of money.

Brown cited the example of William H. Green, who was arrested on June 7, 1929, in Camden, NJ. Green had been buying cancelled stamps from the Federal Reserve Bank of Philadelphia, than soaking the stamps off paper and remnants of envelopes to which they were affixed before selling them to various individuals. It’s unclear if Green or those he sold to handled the “washing” of the stamps to remove the cancellation marks, in order to make them appear unused.

Green and eight others were indicted in Charleston, SC, on May 28, 1929, for “washing used postage stamps for intent to reuse them for postage purposes, and conspiracy to commit such offenses.”

One of the others indicted was William B. Hale, who had been arrested in 1926 for similar offenses and sentenced to prison for a year and a day.

Hale apparently took his craft seriously. He received directly or indirectly, Brown wrote, canceled stamps obtained by stamp collectors from the Federal Reserve Banks at Philadelphia, Boston, New York, Detroit, Kansas City, and Dallas; and was believed to have obtained many canceled stamps from the Federal Reserve Bank at Atlanta.

Hale got a sentence of 20 months in connection with the 1929 indictment.

The Federal Reserve Board of Governors agreed with Brown’s recommendation and stopped selling used stamps to collectors and others, destroying them, instead.

Hence, the price philatelists pay today for higher-denomination stamps from that era and afterward is likely higher than it otherwise would have been, as the Fed’s decision to destroy high-denomination stamps made those that survived scarcer and more valuable.