Fraudulent privatisation: the Irish hospital sweepstakes
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- Written by Martin Dorgan
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How did a group of businessmen with the approval of the government of the day turn a scheme to benefit the building of hospitals into the biggest fraudulent operation ever to be perpetrated in Ireland or indeed the world at the time? The Irish Hospital Sweepstakes Trust company established in 1930 with full governmental approval has proved itself to be a remarkable example of the endemic, systemic and deeply entrenched politically corrupted entities to have emerged within the ‘charitable sector’ in Ireland. Its primary purpose, funding of hospitals and healthcare in Ireland, if achieved, would almost certainly have elevated Ireland’s healthcare system to world class status. However, on the contrary it proved to be a scandal of the highest proportion highlighting political corruption, greed and nepotism embedded within the heart of the Irish political arena.
Our subject is the generation of social harm by political corruption in the development of healthcare in Ireland through its early funding. There was an abrogation of duty by politicians to fund a health service and in delegating this task to a former politician, Joe McGrath, they allowed him to form a company through the Irish Hospital Sweepstake Trust which gave licence, via legislation, to unprecedented wealth through total lack of scrutiny. The enormous amount of money squandered from the sweeps draw, and pocketed by the organizers at a time of great poverty, ill-health and poor sanitary conditions, would have made huge inroads into delivering formidable health and welfare provision for the citizens of Ireland. Joe McGrath became the wealthiest man in Ireland from this venture and with this success came immense power. The politicians were unwilling to question the activities of the Sweepstakes funds as it had been so successful and the general situation of the country at the time (1930's onward) was in dire need of funding.
Early history of healthcare in Ireland and fundraising
Public healthcare in Ireland from the late 19th century to the mid-1940's was almost entirely funded by local authorities with some assistance from central government, in the form of grants derived from Estate Duties Act (1888) and Licence Duties Act (1898). This legislation facilitated a means to contribute towards salaries of doctors, nurses and other staff in workhouses and dispensaries (O’Morain, 2007).
In the early part of the 20th century with the emergence of the Irish Free State, an absence of formidable funding was evident in healthcare provision mostly due to the emerging poor state of finances following the civil war in Ireland. Voluntary hospitals were funded by philanthropic donations, and outside Dublin a system of general hospitals were very slow to develop. Workhouses were still part of the Irish healthcare system, with public health services being inadequate at a time when poverty and diseases such as tuberculosis were rampant (ibid).
In the 1920's as a fundraiser, a Dublin bookmaker Richard Duggan ran a sweepstake i.e. a form of gambling, especially on horse races, in which all the stakes are divided among the winners for the Mater Hospital with a prize fund of £10,000, despite its prohibition and against a background of weakened law enforcement, proved to be very beneficial. The success of this enterprise prompted the government to consider this method as a funding mechanism for healthcare in Ireland. O’Morain, (2007) further explains that this legislation, evolving as the Public Charitable Hospitals Temporary Provision Act of 1930, was the starting point of the Irish Hospital Sweepstake Trust funding for hospital building.
The Sweep’s inaugural race meeting was the Manchester Handicap in November 1930. Supervised by General Eoin O’Duffy the Garda’s chief commissioner, (later Leader of the Blueshirts, a short-lived fascist party in Ireland), two blind boys from Drumcondra plucked the winning draws from a barrel at The Mansion House. The Sweep publicity boosted the event so much that the race fielded the largest number of horses in living memory. The company raked in over £415,000 in ticket sales. After the prize money was deducted, the benefiting hospitals got £131,798 and the promoters pocketed a cool £46,085 (Coleman, 2009).
The three men who launched the Sweepstakes (Sweep) were Dublin bookie Richard Duggan, Welsh-born Captain Spencer Freeman and celebrated former Free State minister Joseph McGrath, once an associate of Michael Collins. But the Government legislation, giving the state's blessing to the plan was so full of loopholes that the Sweeps' organisers could leave enormous sums undeclared as expenses. Perhaps the biggest irony of all was that while the promoters were not liable for tax in Ireland, the hospitals had to fork out a quarter of their comparative pittance to the revenue commissioners (Dodd, 2003).
Duggan, who originally conceived the idea, did not even lend his name to the company which organised the first Sweep in November 1930. Partly because two Sweeps which he organised in 1922 and 1923, on which the promoters’ profits were never published, had aroused hostility in the Dáil (Parliament in Ireland) and his presence as an organiser could have raised criticism. So began an agreement signed by Hospitals Trust Ltd. in 1930, which the state legalised, with a group of six Dublin hospitals, to allow the company to promote sweepstakes on the hospitals' behalf (Corless 2010).
What began as a fundraiser for the establishment of hospital buildings set a pattern of behavior, dominated by businessmen who through the government’s ambivalence allowed the Sweep, with its legally dubious workings, to evade restriction, tax and state control. This control continued until its liquidation in 1987 in favour of a National Lottery. Its relevance here is the uncovering of vast amounts of money purported to aid hospital building and healthcare were diverted into the pockets of the operators. The social harm generated from this time continued for over three decades where funding anomalies left unchecked contributed to the detriment of the citizens of Ireland.
As a result of that agreement, Hospitals Trust Ltd. were being paid over £300,000 per year as a management fee for promoting the Sweepstakes (Sweep). Over a ten-year period they received fees of £3,115,178. The promoters also received a salary in addition to the fee. According to the Readers Digest report, the late Joe McGrath’s salary was £100,000 per year plus generous expenses. No tax was deducted from the promoters’ revenue in the published accounts of the Sweep. The hospitals, on whose behalf the Sweeps are run, were not so fortunate. Their allocation after each draw was taxed at 25% (in the form of Stamp Duty).
In the Cambridgeshire draw run in September 1972, for instance, the hospitals’ share of the proceeds was assessed at £979,084. The Sweep promoters describe this sum as 25% going to the hospital Fund. In actual fact, the hospitals receive nowhere near this figure. After tax is deducted, the hospitals' revenue dropped by £244,777 to 19 % of the proceeds disclosed, with the hospital receiving about £600,000 while the Sweeps fund was in excess of £3.5 million. Might this figure might be regarded as reasonable if it were a true proportion of the actual money spent on Sweep tickets? However, the published proceeds did not reflect the real figure involved (ibid).
Part of the reason for this can be traced to the Public Hospitals Act (1933) which governs the running of the Sweep. Section 2 provides as follows:
“When calculating for the purposes of this Act the amount of the money received from the sales of tickets in a sweepstakes, the value of the tickets issued free of charge by way of a reward to a seller of tickets shall be excluded from the calculation and there shall be deducted from the nominal selling price of all other tickets all commissions, prizes and other remuneration given in relation to the selling of such tickets.”
Thus, the number of tickets given by way of reward were deducted before making up the proceeds which are published by Hospitals Trust Ltd. The Section also excluded from the tally commissions, prizes or other remuneration given in relation to the sale of tickets. It is described as a limitation on the organisers but it is in fact an open invitation to maintain an expense account which need never be shown to the public.
Because of this, the Sweep promoters operate two sets of expenses, only one of which ever appears in the published balance sheets. And even the published accounts were restricted to Dáil deputies and those directly connected with the Sweep.
Under the 1933 Act, the body which is supposed to control the Sweep is the Associated Hospitals Committee, a group of distinguished medical practitioners and laymen. As the law stood then, they held the real power to run the Sweep. Although they gave Hospitals Trust Ltd. permission to promote and organize the Sweep through an agreement signed on June 29, 1930, it remains unclear how they could abrogate their responsibility in law for overseeing all the Sweeps finances. This committee copper-fastened the power of the operators of the Sweepstakes financing of hospitals and set in motion a power which dictated healthcare funding in Ireland at the whim of political entities who were funded in election campaigns by the operators of the sweepstakes. This ensured a measure of control over funding allocations. Had the funds raised by the sweepstakes been used for its lawful purpose much of the social harm through lack of healthcare provision which resulted through political nepotism might never have occurred (MacAnthony 1973).
Because the first Sweep was such an enormous success and brought in a good deal of money for Irish hospitals, few people were prepared to question the working methods of the promoters, least of all the Hospitals Committee charged with running the Sweep. As a result, the promoters received considerable freedom in disposing of the Sweep revenue in selling tickets. Since they did not have to explain to the Hospitals Committee, who was receiving commissions and since the law allowed them to keep such facts concealed from the public, they were only responsible to themselves and their auditors, although they were required to supply the Minister of Justice with the actual figures involved.
By the close of 1932, the Sweep had made its directors millionaires and set the ball in motion for the development of Irish hospitals. The 1932 Derby alone made gross proceeds of nearly £4.2 million. Some 76% of the Derby money came from England and, to a lesser extent, Scotland and Wales.
The very success of the Irish Sweepstake was that Britain’s cash-strapped government was appalled to see so much sterling leaving the kingdom in a time of economic depression. Britain’s Protestant work ethic was particularly horrified by the unprecedented promotion of this ‘orgy of gambling’, albeit in the name of hospitals. Lotteries, sweepstakes included, had been outlawed in Britain since 1823, all this money was flowing into an Irish Free State which, since February 1932, was ruled by Britain’s arch-nemesis, Eamon De Valera.
Not surprisingly, the Fianna Fail government had few objections to the massive cash injection the Sweep gave the Irish health system. Ireland was one of Europe’s poorest countries. The existing hospitals were shoddy, the country was riddled with tuberculosis and the public finances were stone-broke.
In November 1934, Westminster passed the Betting and Lotteries Act, specifically designed to halt the sale of Irish Sweepstake tickets in Britain as the outflow of sterling from the UK was considered enormous, being the main contributor to the Sweepstakes draws, McGrath and Freeman did their best to ignore the British restrictions. They actively encouraged smuggling, shipping tickets across the Irish Sea in coffins, egg crates, toys, laundry sacks.
Coleman (2010), in her research offers a considerable insight into the workings of the promoters’ acumen in salesmanship where Freeman brilliantly orchestrated the Sweep’s publicity. For every Sweepstake draw, he organized a massive parade through Dublin city centre, with all the tickets carried in a series of ornate boxes by beautiful, hand-waving nurses, and the occasional elephant thrown in for good measure. The draw itself was conducted with theatrical palaver, choreographed from the roll of the drum to the selection of the winning draws. The Sweep also sponsored music shows on Irish radio.
With profits accumulating from all their activities, the promoters of the Sweep seeing war clouds on the horizon in 1939, were determined to make sure that nothing would interfere with their earnings. They persuaded the Government to bring in an Act that would cover their costs if the Sweep ever lost money. In the euphoria which existed about the Sweep at the time, they had no difficulty in getting the law passed as Act No. 15 of 1939. The following year in April 1940, the Sweep suddenly lost £61,628. The act was repealed the following year.
The United States of America and Canada
The Irish Sweepstakes Trust had a formidable fundraising network for its directors to fund their own lifestyle, abetted by loose legislation which enable them to garner vast sums of money to be declared as expenses and costs. Although lotteries of this type were illegal in the USA, the former comrades of Joe McGrath were well placed to act as conduits to this elaborate money-making racket. The distribution network for the Sweepstake tickets was a vast array of Irish diaspora in both America and Canada who had emigrated to America in the early 1900s and saw a need in which to promote the ticket sales i.e. the development of Irish healthcare. The Sweep’s two main ticket agents in the USA were Joseph McGarrity and Connie Neenan, both leading members of the Old IRA.
Born in Co. Tyrone, McGarrity was a personal friend of both McGrath and de Valera. He headed up the Philadelphia district of Clan-na-Gael and was one of the biggest fund-raisers for the Irish Volunteers during the War of Independence. McGarrity also had considerable business interests in Philadelphia. Initially he ran a wine and spirit business until it was outlawed by prohibition in 1919. In 1930 he was made a member of the New York Curb Exchange, (an earlier name for The New York Stock Exchange), but was expelled when found he had kept false entries. This left him in serious financial difficulty but when the Sweepstake agency came his way in 1933, it set him straight (Coleman 2005) .
An aside to the illegality of the Sweep in the USA was that the American authorities did not realise how they were helping the fraud by impounding ticket stubs as associates of McGrath attempted to smuggle them back to Ireland, as lotteries were illegal in the States, the US Customs had the authority to seize the Sweep tickets bound for Ireland. This they did, in their thousands, but, the money had already been collected in an operation run by fellow patriots, and was on its way back to McGrath, less the substantial slice due to the Stateside contacts. Those in the know spoke of one plane so overloaded with sacks of money, it barely managed to take off from New York airport. And the people who had paid for the tickets? Simple. The feds took the tickets.
The Government in Ireland enacted a new Gaming and Lotteries Act (1956) and such was the power of the promoters that the Irish Sweepstakes Trust draws were exempt from this act.
In 1972 an investigative journalist was tasked with looking into the affairs of The Irish Hospital Sweepstakes Trust (1940 Ltd.), Joe Mac Anthony, who wrote an article in the Sunday Independent ‘Where have all the millions gone?”, was initially reluctant to carry out the task and when he looked into the company he couldn’t find anything wrong. But for a colleague who knew of the conditions of women working for the company, disclosed to him that the were treated badly in terms of pay and pension provisions, he decided to look further.
With primary sources and relying on a TD to bring documents from the Dail library, which were not available to the public, he began to uncover what was to be a phenomenal story of corruption, greed and collusion with state officials both elected and unelected in Ireland on the pretext of Irish healthcare charitable fundraising. From the outset he investigated the initial pre Sweep lottery prior to 1930 and found sharp practice was endemic in the process, finding that Duggan would hold a lottery for a hospital in Dublin, the draw would take place in Switzerland and someone with a post office box in Egypt would win (Corless 2010) .
In another instance, the Superintendent who was supervising the draw drew the winning ticket which happened to belong to his own son. Having found this evidence, Joe Mac Anthony travelled to Canada and the US where he uncovered vast information about inner workings of the Sweep draws through the US Postal Service and Canadian police (first published Sunday Independent, January 1973) (redacted). Eventually he put together a major story depicting the true nature of the corrupt nature of the directors of the the company. Publishing the story in the Sunday Independent in 1973 was fraught with difficulties as the owner Murphy was close friends with the directors of the Sweepstake Trust. The editor Conor O’Brian, without giving advance notice to the owner, went ahead and published the 7,000-word article in one issue as he had not the confidence in Murphy to continue with a two-day exposure (Corless 2010).
This investigation established that hospitals were receiving less than 10% of the funds raised marketed in their name throughout the world by Hospitals Trust (1940) Ltd. From interviews with US Postal Department and police in Canada, the bulk of where tickets were sold, made clear that 90% of the value of the tickets in each draw have been written off for expenses to the tune of $250,000 per week.
The investigation also showed that the persons legally responsible for managing and controlling the Sweepstake draws, The Associated Hospitals Committee were not fully aware of the true figures involved in the running of the sweep (ibid).
These disclosures are only part of what must be one of the most extraordinary, yet least publicised, stories in modern Irish history, for the facts show:
- That the Act which licences the Sweep was so framed as to prevent the Irish public knowing the real amount of money spent in running the scheme.
- That the figures published by Hospitals Trust (1940) Ltd after each sweepstake are considerably less than the true amount involved.
- That the hospitals receive only 75% of the sum described as the Hospital Fund – because the only tax on the Sweep is taken from the hospitals not the organisers.
- That agents of Hospitals Trust Ltd. were engaged in selling tickets abroad at prices far above those sanctioned by the Minister for Justice.
- That leading shareholders in Hospitals Trust (1940) Ltd. have also been involved with a bookmaking group in buying up ticket shares which allows them to win their own prizes. (Mac Anthony, 1973).
MacAnthony calculate in 1972 that the leading family involved in the Sweep, the McGraths, were increasing their wealth at a rate of £8,000 per day, most of those who have retired after giving 25 years of service to Hospitals Trust Ltd. were receiving a pension of less than £4 a week.
Other revelations surfaced from the investigation such as the banking system they operated which made it impossible to follow where money went. Money lodged from abroad went into Bank of Ireland, on the following day the money received was lodged with an American company and the day after the money goes to a British company.
MacAnthony’s disclosure uncovered a myriad of activities where a Canadian policeman stated that the Irish Sweeps operated the ‘ largest smuggling ring outside the Mafia’ paying bribes to seamen, longshoremen, railway workers, postal staff and customs officials’ (Corless 2010, p 210).
The extent of the operation in Canada was summed up by a former chief of the Montreal’s Morality Squad when he told MacAnthony that he had seized so many tickets for one draw in 1966, that the confiscated tickets had a combined value higher than the entire proceeds listed by the Hospitals Trust. Receipts were issued on another occasion supposedly issued by the Hospitals Trust and sold just four days before a draw which meant that the receipts were bogus. With the tickets at $3 a share, a senior police official estimated that out of every $3 spent, 90c went back to Ireland (Coleman 2009)
Following the outcry surrounding the Sunday Independent article by MacAnthony, many politicians including the former justice minister Des O’Malley voiced criticism in public made only previously in private to colleagues. Years later he revealed details of his difficult dealings with Hospitals Trust and his own civil servants. He said:
‘I had to read the deed (for the Sweep draw) four times a year. I began to ask questions about it and discovered the hospitals were receiving very little money but an awful lot of money seemed to be flowing around’. I found the only real sanction I had if you were making inquiries into the Sweeps was to refuse to sign the deed. So I hinted in that direction and Paddy McGrath came to me and said what would happen to the 800 or so employees working in the sweeps office’. Concerning the power of the promoters, O Malley added ‘They were not shy about exercising the economic and social power that their position gave them’ (Corless 2010, p 217).
Debates occurred in the Parliament (Dail) and O’ Malley put pressure on the then Minister for Justice, Patrick Cooney, on details of management fees paid to the promoters, who stated that the accounts of The Hospitals Trust were available in the Dail library. Among other contributions was that of Dr Bill Loughnane who stated ‘There is something phoney about the finances of the Hospitals Trust and asking of the minister ‘is it not worthy of investigation’? (Dail debates 5th July 1973)
An interesting development took place in 1973 when the newly appointed Taoiseach, Liam Cosgrave, nominated Patrick McGrath (son of Joe McGrath) to the Seanad which was seen as a vote of confidence in the Sweeps promoters (ibid) (a Taoiseach at that time could nominate a number of senators to command a majority in Seanad Eireann (Irish Senate).
The financial benefits gained by the organisers of the Sweepstakes draws can be considered in todays terms in €billions whilst the hospitals, who received less than 10% of the “official” net receipts, were both taxed by stamp duty and defrauded of much-needed money to build a healthcare system without any oversight. Political ineptitude deprived the state of much needed services and the method of setting up the Irish Sweepstakes through legislation granted it immunity from outside scrutiny. Criminal proceedings were never instigated against any of the organisers.
Over a number of years up to 1987, the fortunes of the Sweep draws began to decline through a company called Avenue Investments, the Duggan, Freeman and McGrath families continued to prosper.
The biggest earner on their considerable commercial portfolio was Waterford Glass, the largest producer of high-quality crystal in the world by 1977. By 1984, the fortune was all but destroyed by a combination of bad timing, bad investments and bad luck. They sold Waterford Glass for £17 million, a fraction of its value. Their saving grace was a loophole in Irish tax laws which enabled them to keep their capital gains tax payments to a minimum. The scandal centred on the State’s apparent sanction of this illicit operation, when it transpired that monies raised from the Sweep assisted and bankrolled campaign expenses for a generation of politicians from all three major parties (Coleman 2009).
The Irish Hospital Sweepstakes began its life in 1930 and finally ended in 1987. The nature of politics in Ireland allowed this dubious enterprise to flourish throughout the period. Indeed, whilst it is true that the health service in Ireland benefited greatly from the funds raised, the overpowering information uncovered by journalist Joe MacAnthony depicts a hugely pervasive system where, at a maximum, the monies (less than 10%) raised, were given to hospitals but the vast amount of raised monies were appropriated by unscrupulous and greedy people through legislative and political incompetence for 37 years (Corless 2010; Earner-Byrne 2010; Coleman 2009).
The underfunding of healthcare and the emergence of such funding at a crucial time was overshadowed by poor regulation and by political nepotism. Licensing conditions enabled the ‘owners’ to accumulate unprecedented wealth. Lack of scrutiny and transparency has been Illustrated by the oversight Committee who ‘turned a blind eye’ to the actions of the organisers.
Successive governments of the day demonstrated, by omission, their complicity with the organisers by their non-accountability. Furthermore, the sweeps draw flouted other countries’ gambling laws, indeed there were very few prosecutions in the participating countries.
Today, many ‘charities’ with government financing, coupled with public fundraising licensing have come under scrutiny. Console (a suicide prevention charity) finds itself currently shut down while investigations are taking place to ascertain if funding discrepancies have occurred. According to the Irish Examiner: “the scandal-hit organisation has already brought not alone the charity model into question with the ensuing implications but also the state itself has been strongly criticised for its lack of “an active, regulatory role in the provision of these services”. (Irish Examiner, editorial, 8th July 2016). Does history repeat itself?
Mac Anthony, J., 1973. Where Did All The Millions Go? Sunday Independent.redacted, reprinted in blog markhumphrys.com/bock.html
Coleman, M., 2005. “A Terrible Danger to the Morals of the Country: The Irish Hospitals” Sweepstake in Great Britain 1930-87 on JSTOR. RAI:Archaeology, Celtic Studies, History, Linguistics, Literature, 105C (No 5), p.pp 197-220.
Coleman, M., 2009. The Irish Sweep: A History of the Irish Hospitals Sweepstake, 1930-87, Dublin: University College Dublin Press.
Corless, D., 2010. The Greatest Bleeding Hearts Racket in the World: Irish Hospitals Sweepstakes, Dublin: Gill &Macmillian.
Dodd, S., 2003. Irish Sweepstake scandal remains a lesson to us all - Independent.ie. Irish Independent.
Earner-Byrne, L., 2010. Irish Hospital Sweepstakes book review M. Coleman, ed. Irish Historical Studies, 37(146), pp.349–51.
O’Morain, P., 2007. The Health of The Nation, Dublin: Gill &Macmillian.
Martin Dorgan worked in the pharmaceutical industry for many years. He holds a BSc (Hons) in Government and an M. Soc.Sc. (Social Policy) from UCC, and is currently doing a PhD on “The Generation of Social Harm in Irish Healthcare” within the Discipline of Criminology at the Dept. of Sociology, UCC.