During the summer of 1870, Belknap successfully lobbied Congress to grant him the sole power to appoint and license agents, known as sutlers, with ownership rights to highly lucrative "traderships" at U.S. military forts in the Western frontier. These monopoly traderships were considered good investments during the Gilded Age and were highly sought after. On July 15, the Commanding General of the Army's power to appoint traderships was repealed, empowering Belknap while further eroding Sherman's authority.

To ensure maximum profits, Belknap ordered soldiers stationed at forts having Belknap-approved sutlers to buy supplies only through the authorized traderships. Soldiers on the Western frontier, who were thus forced to buy goods at exorbitant prices that far exceeded the usual rate, were left in debt or destitute as a result. One 7th Cavalry Sergeant noted that a shot of whiskey "mostly glass" cost 25 cents (.25¢ 1871 = $5.40 2019) glass, at a time when soldiers were paid a few dollars ($1.00 1871 = $21.60 2019) a month.

Hostile American Indians bought supplies at these traderships, including high-quality single-shot breech-loaders and repeating rifles. At the same time, Army requisitions for rifles were filled by Belknap's War Department with inferior single-shot breech-loaders that jammed frequently, and were no match for superior breech-loaders and repeating rifles. The policy had a negative effect on the firepower of the U.S. troops and may have contributed to the defeat of George Armstrong Custer and the 7th Cavalry at Battle of the Little Big Horn in June 1876, several months after Belknap was out of office. However, Custer had also decided against bringing Gatling guns; these would have increased Custer's firepower, even if his troops had been armed with inferior rifles.)

Belknap's second wife, Carita, was socially ambitious and unwilling to live in Washington, D.C., on Belknap's $8,000 annual salary (about $157,000 in 2018).[44] When the couple arrived in Washington from Keokuk, Iowa in 1869, Belknap rented a large house recently vacated by Secretary of State William H. Seward. In hosting large parties, a typical social requirement for cabinet members, the Belknaps overextended their invitations; one of their events had 1,200 guests, including many young army officers; the resulting raucous behavior led to extensive damage and vandalism, including destruction of curtains, couches, and other furniture. The Belknaps could not afford to pay for the damages, and were faced with leaving Washington society and reducing expenses by living in a boarding house, or finding a way to increase their income.

They decided to look for additional income, and Carita engineered a plan to obtain a lucrative "cash cow" Indian tradership position at the recently built Fort Sill, located in the Oklahoma Indian Territory. Carita lobbied her husband to appoint a New York contractor, Caleb P. Marsh, to the Fort Sill tradership; John S. Evans, an experienced sutler, had already been appointed and did not want to give it up. To settle the question, Marsh drew up an illicit partnership contract that allowed Evans to keep the tradership at Fort Sill, provided that he pay Marsh $12,000 per year in quarterly installments (approximately $236,000 in 2018). Marsh, in turn, was required to give half of his $12,000 to Carita, also in quarterly installments. All the parties agreed to the arrangement; however, Carita received only one payment before her death from tuberculosis after childbirth in December 1870.

After Carita's death, Marsh continued to pay the quarterly share of the profits to Carita's younger sister Amanda, known as "Puss", who had moved in with the Belknaps, ostensibly to hold as a trust fund for the benefit of Carita's child. This profiteering arrangement between Amanda and Marsh was all done with Belknap's full knowledge and consent. After Carita's child died in June 1871, Amanda left to tour Europe, and Belknap continued to take the quarterly bribery payments until December 1873, when Amanda returned and became Belknap's third wife. Amanda was a beautiful young socialite; intending to keep the modest fortune she inherited from her family while also attaining a high position in Washington society, she required Belknap to sign a prenuptial agreement.

Belknap rented a large new house on G Street, which had been built by Orville Babcock, President Grant's personal secretary. From that time onward, Belknap and Amanda continued to accept Marsh's quarterly payments. Amanda was considered to be more self-indulgent than her sister Carita, donning gorgeous gowns, jewelry and other accessories for parties and other events, and called the "spendthrift belle" by Washington society. The Belknaps' extravagant lifestyle entertaining Washington society, holding lavish parties, and wearing elegant clothes, created envy among both Democratic political figures and permanent residents of Washington. However, that the Belknaps were receiving kickbacks was not publicly known until February 1876, when the Democratic-controlled House of Representatives launched an investigation, which discovered that Belknap and his wives had received about $20,000 (approximately $394,000 in 2018) in bribes from Marsh.