During the Second World War SIS dramatically expanded its operations in both North and South America, and, as Japan appeared to pose an increasing threat to British interests in Asia, there was a modest expansion of activities in the Far East. Before 1939 there were three SIS stations in the Americas: ‘48000’ in New York, where the Passport Control Officer (with the curious telegraphic address ‘Subsided New York’) had responsibility for ‘U.S.A. and Dependencies’; ‘72000’, based in Panama, responsible for ‘Mexico, Central America & all South American countries lying North of, but not including, Brazil and Peru’; and ‘75000’ at Montevideo covering the rest of South America. Although the New York office was to become the most important single overseas SIS station of the Second World War, in the early autumn of 1939 it was something of a quiet backwater. The whole station comprised only nine people: the Passport Control Officer, Captain Sir James Paget, who had been in New York since August 1937, an assistant PCO, four Examiners (whose duties were mostly concerned with actual Passport Control work) and three secretaries. At this time the station appears to have had no agents at all on the books, which reflected Sinclair’s order in June 1938 to cease operations against United States targets.
William Stephenson and the creation of BSC
All this was to change over the next six years. For the first eighteen months or so of the war, before the Lend-Lease agreement of March 1941 when the USA formally committed itself to supporting the British war effort, Britain was faced with a situation where a great proportion of its war production, supply, shipping and foreign investment was situated in a country which had no obligation to protect it, and within which there were substantial minority communities sympathetic to the Axis powers. Although the specific acquisition and security of supplies was in the hands of a British Purchasing Commission, SIS had to provide much of the necessary information, and also step up counter-espionage and subversion work. But this required close liaison with the FBI, which was eventually established through the person of William Stephenson.1
Stephenson had first come to SIS’s notice in the summer of 1939 when he offered to put his British Industrial Secret Service (later Industrial Secret Intelligence) at the disposal of the British government.2 In 1939-40 he provided information about Scandinavian matters, especially Swedish iron-ore supplies to Germany, which Section D were keen to disrupt, and he evidently impressed SIS sufficiently for Menzies to use him in April 1940 as a go-between with J. Edgar Hoover of the FBI. Stephenson was ideal for the job as he could reach Hoover through a mutual acquaintance, the boxer Gene Tunney, whom he had met as a fellow member of an inter-service boxing team in Amiens in 1918. The first Paget learned about this mission was a cable from Menzies informing him that Stephenson ‘is doing nothing against America and is known to us. Should an enquiry reach you from Hoover you can say he is all right.’ Stephenson visited Hoover on 16 April and (as the American record dryly put it) ‘discussed arrangements for co-operation between the British Intelligence Service and the Federal Bureau of Investigation’.3 That evening Stephenson excitedly reported to London: ‘long Washington conference completely successful . . . Will co-operate fully with all resources . . . Have undertaken all communications strictly unofficial personal and secret between him and C.S.S.’ Code-names were given to the two men: ‘Our chief is S. M. Scott’ – Menzies – while Hoover was to be ‘H. E. Jones’: ‘Jones sends Scott assurances of goodwill and of desire to assist far beyond confines of officialdom.’
While London reminded both Paget and Stephenson ‘that any liaison resulting from this must be entirely unofficial’, Hoover took very good care to clear the arrangement with President Roosevelt’s secretary, General Edwin M. Watson, and ensure that the White House had no objection to the proposed relationship (still apparently kept secret from the State Department) between the FBI and SIS. Stephenson stayed in America for over a month and had a number of meetings with Hoover who, he told Menzies, had invited him to ‘procure official position to remain Washington as your personal contact’. Menzies liked the suggestion and appointed him Passport Control Officer at New York in place of Paget (who was ordered home and rejoined the navy), explaining to Gladwyn Jebb that Stephenson had good contacts with an official who saw Roosevelt daily, and he thought that this would prove of ‘great value’.4
As Paget received his orders to leave, the controversial former SIS New York representative, Sir William Wiseman, turned up in London offering his services. The previous autumn Broadway had rejected a suggestion that he might organise propaganda in the USA. By this stage Wiseman’s notable success as an ‘agent of influence’ during the First World War had been rather eclipsed by the reputation for self-promotion which he had acquired among Admiralty circles (and put about by the former naval attaché Sir Guy Gaunt whose amour propre Wiseman had offended in 1915-17). ‘Beyond indulging in an inordinate amount of intrigue,’ Sinclair had written in October 1939, ‘it is not known that he achieved any signal success.’ Wiseman was, he continued, ‘extremely shrewd, and although mistrusted by most people, nevertheless manages to worm his way into the confidence of prominent persons’. So it happened in June 1940 when Wiseman persuaded the Foreign Secretary, Lord Halifax, to suggest that he be found some substantive role in America. But Menzies would have none of it. ‘Both my predecessors made it clear that in their view Wiseman should never be employed again by this Organisation,’ he wrote, adding enigmatically: ‘They had their reasons.’5
Stephenson arrived in New York to take over as Passport Control Officer on Friday 21 June 1940. The following day France signed an armistice with the Germans, leaving Britain and the empire to stand alone. The official history of what became (from January 1941) British Security Co-ordination, which Stephenson had caused to be compiled in 1945, states that, before he left London, he ‘had no settled or restrictive terms of reference’, but that Menzies ‘had handed him a list of certain essential supplies’ which Britain needed. Menzies also laid down three primary concerns: ‘to investigate enemy activities, to institute adequate security measures against the threat of sabotage to British property and to organize American public opinion in favour of aid to Britain’. With his headquarters on the thirty-fifth and thirty-sixth floors of the International Building in the Rockefeller Center, 630 Fifth Avenue, Stephenson built up a very extensive organisation, recruiting many staff from his native Canada, although Menzies sent the intelligence veteran C. H. (‘Dick’) Ellis to be his second-in-command. The New York organisation expanded well beyond pure intelligence matters, and eventually combined the North American functions not just of SIS, but of MI5, SOE and the Security Executive (which existed to co-ordinate counter-espionage and counter-subversion work): intelligence, security, special operations and also propaganda. Agents were recruited to target enemy or enemy-controlled businesses, and penetrate Axis (and neutral) diplomatic missions; representatives were posted to key points, such as Washington, New Orleans, Los Angeles, San Francisco and Seattle; American journalists, newspapers and news agencies were targeted with pro-British material; an ostensibly independent radio station (WURL), ‘with an unsullied reputation for impartiality’, was virtually taken over; and close liaison was established with the Royal Canadian Mounted Police. Stephenson also ran special operations throughout the western hemisphere and from July 1942 to April 1943 was put in charge of all SIS’s South American stations.
‘Wild Bill’ Donovan and liaison with the USA
United States intervention on the Allied side was, of course, the ultimate British aim and in 1940-1 Stephenson played a central role in building the closest possible Anglo-American relations. Making contacts and lobbying at the highest levels of the American administration was a key objective, though one which inevitably overlapped with the conventional diplomatic activities of the British embassy in Washington. Both Stephenson and the British ambassador, Lord Lothian, for example, worked to cultivate Frank Knox, the recently appointed United States Secretary of the Navy, who was known to be strongly pro-British and anti-Axis. Stephenson’s entrée to Knox was through an existing acquaintance, Colonel ‘Wild Bill’ Donovan, who was to become the leading figure in American secret intelligence and operations during the war. Donovan came from a poor Irish-American background, but had been a classmate of Roosevelt at Columbia Law School. He earned the nickname ‘Wild Bill’ when fighting against Pancho Villa with General Pershing’s expedition to Mexico in 1916 and went on to command the New York Irish ‘Fighting Sixty-Ninth’ regiment on the Western Front, returning home as America’s most decorated soldier. In the later 1930s he was used by Roosevelt for fact-finding missions to Ethiopia and Spain and came to oppose the USA’s prevailing isolationist foreign policy. He was to be an extremely important ally. As Stephenson told Menzies in December 1940: ‘A Catholic, Irish American descent, Republican holding confidence of Democrats, with an exceptional war record, places him in an unique position to advance our aims here.’ Though he was pro-British, this was ‘from a practical American stand-point and really simple fundamental that only Britain is between Hitler and America’.
On 10 July 1940 Lord Lothian reported that Knox was sending Donovan to England to investigate ‘Fifth Column methods’. Lothian recommended that Donovan, as an ‘influential adviser’, be ‘given every facility’, even to the extent of meeting the Prime Minister. On 15 July Stephenson wired Menzies to tell him of the proposed trip, adding that Donovan was personally representing Roosevelt, Hoover and Knox. The visit was a tremendous success, not least because of Menzies’s efforts. He told Stephenson that Donovan had ‘been put in contact with all leading Government officials and Ministers’. Meetings with both Churchill and the King had been arranged, and he visited factories and military bases, returning to the USA convinced of Britain’s resolve to hold out, an opinion diametrically opposed to the reports of imminent and inevitable defeat being sent to Washington by the Boston Irish-American ambassador in London, Joseph P. Kennedy.6 Kennedy remained an impediment to closer Anglo-American relations. On 26 November 1940 Stephenson reported that the ambassador was in California telling movie magnates ‘that they will eventually have to look to Hitler for their market’ and had ‘addressed service officers with such alarming effect that Knox has informed President “If that son of a bitch comes anywhere near my people again there will be trouble for him. As undoing Donovan’s good work.”’
Following Wild Bill’s visit, Menzies told Stephenson that Donovan had been convinced of the necessity for the ‘closest co-operation’ between the FBI and SIS, and was also prepared to advocate that Army and Naval Intelligence should similarly co-operate with the British. For his part, Stephenson was delighted to report that Donovan had ‘strongly urged our case regarding destroyers and other matters’ to the United States government, and it seems clear that Donovan’s strongly expressed views (as well as Lothian’s and Stephenson’s lobbying) played a significant part in paving the way for the September 1940 agreement by which the USA agreed to provide the United Kingdom and Canada with fifty badly needed destroyers in exchange for rights to bases in British possessions. Stephenson reckoned that Menzies indeed had played a crucial role in cultivating Donovan. ‘Give yourself fifty pats on [the] back sometime,’ he cabled on 4 September. ‘Without Colonel, it could not possibly have happened at this time.’7
Another developing liaison which personally involved Menzies concerned signals intelligence. In October 1940 Stephenson told Menzies that the American Military and Naval Intelligence departments now favoured a ‘full exchange’ of all known information on enemy and other codes and cyphers. Having discussed the matter with the armed service Directors of Intelligence in London, Menzies agreed that ‘a pretty free interchange of cryptographic information’ would benefit both the United Kingdom and the United States, and proposed that an American expert be invited to Britain to discuss the matter. If the expert ‘made a favourable impression’, work on Italian and German cyphers could be considered. There was, however, a limit to what might be covered, as Menzies explained to the Director of Military Intelligence. He had discussed the matter with Sir Alexander Cadogan, who agreed that ‘we cannot possibly divulge our innermost secrets at this stage’. Menzies’s main interest, in fact, was in sharing expertise in attacking Japanese codes, but he worried that restricting any discussion to Japan would ‘almost certainly give a measure of offence, as clearly indicating that we have something to hide’. That was perhaps the least of the government’s worries, as one official, bearing in mind that GC&CS had been attacking American diplomatic signals traffic for years, minuted: ‘What will they think if they find we have been reading their own stuff?’ On Menzies’s advice, however, Churchill agreed not to limit the discussions to Japan.8
The Americans, who brought with them a reconstruction of the Japanese diplomatic cypher machine code-named ‘Purple’, visited Bletchley Park over several weeks early in 1941. The discussions went very well, and, at the behest of the Chiefs of Staff, Menzies secured Churchill’s permission to reveal ‘the progress which we have made in probing German Armed Forces cryptography’, though for the moment the discussions were to be ‘confined to the mechanized devices which we utilise and not to showing the results’. Although this decision ‘was thought inadvisable in some quarters’, Menzies firmly defended it as ‘a wise one’, as it led to GC&CS acquiring important new Japanese material.9 This American cryptographic mission to Britain marked a very significant step in the developing Anglo-American intelligence relationship, and the episode illustrates the extraordinary extent to which the British were prepared to reveal (albeit with some understandable reservations) among the most sensitive of all their intelligence secrets to an as yet still neutral United States. The visit, too, was a part (if a very secret part) of that process by which the United States administration, and eventually public opinion, moved away from isolationism and gradually swung towards support for Britain.
A caustic signal from William Stephenson in New York about the anti-British Irish-American Joseph Kennedy (father of President John F. Kennedy).
With Menzies’s encouragement, Stephenson took on responsibilities throughout the western hemisphere which involved both liaising with the Americans and developing intelligence work on his own behalf. Noting that the Admiralty needed information about enemy activities in Mexico, in September 1940 Menzies suggested to Stephenson that if American sources could not provide the information required he should build up a separate SIS organisation there (which he did). Stephenson also worked with the FBI, which from June 1940 to 1946 ran its own Special Intelligence Service throughout Central and South America.10 In November 1940 one of Stephenson’s men in Mexico City passed information to the FBI for the American authorities that four German ships intended to run the British blockade in the Gulf of Mexico, with the result that the ships were stopped by the United States Navy. The FBI was also concerned about the possibility of Axis sabotage throughout the Americas, and when Hoover learned in October 1940 that the Italians were withdrawing $3,850,000 (equivalent to $59 million today) from United States bank accounts for transmission by diplomatic courier to Rio de Janeiro, it was assumed that the money might be used to fund this. The State Department, now well aware of the SIS-FBI liaison, favoured some sort of ‘joint effort’ between Stephenson and Hoover to intercept the funds. Menzies suggested that Stephenson put ‘most imperative pressure’ on a Pan American airline executive to ‘purloin Bags’ en route, and he also endeavoured to ensure that the British authorities in Trinidad and elsewhere in the Caribbean would try to intercept the bags if they came through British territory. Menzies recognised, however, ‘probability is route via Central America’, and although he could alert local British representatives to the passage of couriers through the region, ‘obviously unable to instigate action these countries’. In fact, although two-thirds of the money got through to Brazil, Stephenson was able to help as one Italian courier travelled via Mexico City with $1,400,000. Stephenson’s local representative tipped off the Mexican police, the courier’s bag was opened, ostensibly (as diplomatic bags were supposed to be sacrosanct) by ‘a new and inexperienced clerk’, and the money discovered, confiscated and placed in a blocked account.
During the autumn of 1940 liaison with the Americans increased across the board, though this coincided with an American Presidential election during which Roosevelt had to defend himself against accusations of being too pro-British and recklessly abandoning American neutrality. Stephenson and Menzies meanwhile played a central role in oiling the wheels of the expanding Anglo-American relationship. In November (after Roosevelt had been returned for a third term as President) Stephenson advised Menzies that Donovan, ‘presently the strongest friend whom we have here’, was at Roosevelt’s request planning another trip across the Atlantic, visiting the Mediterranean as well as Britain, before returning to the USA, ‘to repeat his good work of last occasion and also to combat forces of appeasement here which are gaining ground again’. As with Donovan’s previous visit, Menzies oversaw all the arrangements. Writing to Desmond Morton in December, he noted the high importance of Donovan’s friendship for the United Kingdom and argued that, ‘commended by Mr. Churchill for what he has already done for us and directed as to his future course of action in the mutual interests, much can be achieved here more quickly than by any other means’. This was a clear attempt to secure a Prime Ministerial audience, though Morton could promise nothing definite. ‘The Prime Minister’, he replied, ‘knows well the value of Donovan to us, though rightly or wrongly he considers Donovan to be over optimistic.’ Morton offered to give Donovan lunch and ‘remind the Prime Minister’ of his ‘propinquity’. Menzies also lobbied Cadogan, passing on Stephenson’s opinion that Donovan had ‘more influence with the President than Colonel House had with Mr. [Woodrow] Wilson’. This seems to have had the desired effect and Churchill turned up trumps. Not only did he have Donovan to lunch in 10 Downing Street, but he also instructed that, during an extended tour of the Mediterranean, Middle East and Balkans, ‘every facility’ should be afforded to Colonel Donovan, ‘who has great influence with the President’ and who had been ‘taken fully into our confidence’.11
Menzies’s letter of 7 December 1940 to Desmond Morton, introducing ‘Wild Bill’ Donovan to the Prime Minister.
Although Stephenson’s North American position as Director of British Security Co-ordination was formally ‘registered and welcomed’ by the United States government at the end of January 1941, some members of the administration, notably the anglophobe Assistant Secretary of State, Adolph Berle, remained suspicious about the activities of BSC and the closeness of the Anglo-American relationship. In March Berle noted that Stephenson, although ostensibly involved with the protection of British supplies, was developing ‘a full size secret police and intelligence service’, with a string of ‘regularly employed secret agents and a much larger number of informers, etc.’. Berle was not necessarily opposed to protecting British ships and munitions, but believed that this should be done only with official authorisation and in conjunction with the FBI. 12 During 1941 Stephenson’s burgeoning activities also began to concern Menzies, who worried that with his multifarious responsibilities to SOE, MI5, the Security Executive and the Ministry of Economic Warfare he might be losing sight of his primary duty to SIS. Stephenson had been asked to identify potential agents in North America for deployment into occupied Europe. ‘Hope that in this question you will remember that the old Firm has constant and imperative needs,’ wired Menzies. Stephenson could exploit United States neutrality by recruiting agents locally who ‘after training by Ellis as to Service requirements’ could be sent to Lisbon or Switzerland. Stephenson might utilise Spanish ships to put agents into France through Bilbao or Santander. Giving an indication of current SIS priorities, Menzies said that he really ‘wanted high class agent in Vichy for political information as to Government’s plans and true position of [Admiral Jean] Darlan’, the supposed strong man of the Vichy administration.
During the early summer of 1941 Admiral Godfrey, the Director of Naval Intelligence, accompanied by his personal assistant Commander Ian Fleming, travelled to the USA to review and improve Anglo-American intelligence relations. He went out with SIS’s support and, liaising closely with Stephenson, appears to have been in part responsible for persuading Donovan to accept (and getting Roosevelt to agree to) appointment to the position of Intelligence Co-ordinator. As Stephenson envisaged it, Donovan was the ideal person to head an American equivalent of BSC, and he reported to Menzies on the eve of Godfrey’s visit in May 1941 that he had ‘been attempting [to] manoeuvre Bill into accepting job of co-ordinating all 48 land [USA] intelligence’. Once Godfrey arrived, Stephenson organised a private meeting with Knox, Henry Stimson (the Secretary of War) and Robert Jackson (the Attorney-General), hoping that this would ‘induce immediate decision, which would otherwise be long delayed through usual “official channels”’. For his part, Godfrey (who stayed with Donovan in his New York apartment) was ‘profoundly impressed’ by the work being done by Donovan and believed that his ‘energy and drive’ would ‘probably be decisive in obtaining results desired by [British] Chiefs of Staff, namely full co-operation in realms of Intelligence’. Godfrey suggested to the chairman of the Joint Intelligence Committee, Victor Cavendish-Bentinck, in London that Churchill might be asked to send Donovan a ‘personal message of exhortation’, though Cavendish-Bentinck wisely vetoed the idea. ‘Risk of leakage, although small, must be taken into account,’ he warned, ‘and if message ever became known it would expose Colonel Donovan to the imputation of being a British agent instead of the splendid free-lance that he is.’
In his memoirs Godfrey recalled that he had a very difficult time trying to penetrate the Washington bureaucracy, and had not realised how bad relations were between the United States army and navy. He consulted Stephenson who in turn sought advice from, of all people, Sir William Wiseman, who engineered Godfrey an invitation to the White House.13 On 12 June Godfrey wired Menzies and the Admiralty, stating that the previous evening he had dined with ‘Flywheel’ (the codename for Roosevelt) and afterwards had had an hour’s interview alone during which he was ‘cross-examined closely about co-ordination of intelligence and Allied question’. Godfrey was careful not to mention Donovan by name, but there was clearly only one man for the job and Stephenson signalled on 19 June that Roosevelt had appointed Donovan to be co-ordinator of all forms of intelligence (including special operations). ‘You can imagine’, he wrote, ‘how relieved I am after three months of battle and jockeying for position at Washington that “our man” is in a position of such importance to our efforts.’ Donovan’s position as Co-ordinator of Information (COI) was the precursor to his appointment to head the new Office of Strategic Services (OSS) in June 1942. With both the COI organisation as it evolved and the OSS, Donovan presided over a combined intelligence and special operations organisation which more closely resembled Stephenson’s BSC than Menzies’s SIS. Claude Dansey, neatly bracketing the two ‘Bills’ together with his underlying antipathy to special operations, complained in April 1942 that ‘there was not much in Donovan for S.I.S.’. He was ‘completely sold on publicity and this he can find in S.O.E. operations. Further, that 48000 [Stephenson] is urging him on down these noisy paths.’
The rapid growth of OSS into a large and formidable agency, which owed much to the help and advice provided by Stephenson and his people, and its impact on SIS, reflected the positive, as well as the ambivalent and difficult, sides of the Anglo-American ‘special relationship’ during the Second World War and after. Within the undoubtedly close, productive and mutually trustful intimacy of the partnership, there were inevitable zones of competition and conflict, underscored by the fierce enthusiasm and apparently unlimited resources which the Americans poured into the Allied war effort after the Pearl Harbor attack of December 1941. And while the Anglo-American wartime alliance was as close as any alliance had ever been (and perhaps would ever be), neither party was ever completely going to abandon its own national sovereignty. Beyond the very extensive common endeavour to defeat the Axis powers, each country retained its own essential interests, not least in that most private and jealously protected state function of intelligence. ‘My duty’, wrote William Phillips, the OSS head of station in London, was to serve Donovan’s goal of a global American intelligence service, ‘by developing independent American sources of information’ and ‘resisting all efforts of the British Secret Information [sic] to gobble us up’.14 Indeed, it was testimony to the perceived power and efficiency of SIS that American intelligence officers should see the situation in such potentially adversarial terms.
The nature of the apparent challenge posed by OSS as a comprehensive (or substantially so) covert agency, running propaganda and special operations along with pure intelligence, went to the heart of what intelligence work might be and what an intelligence agency might legitimately or appropriately do. From the mid-1930s, under the pressure of anticipated and actual war SIS had intermittently taken on a whole range of covert activities, not all of which were exclusively concerned with the gathering of foreign intelligence from foreign sources. Under similar pressures, and massively reinforced by William Stephenson’s restless business gifts and entrepreneurial flair, BSC developed with astounding speed into an impressively wide-ranging organisation, and one which provoked favourable comment from visiting officers. ‘How much I admire the wonderful set-up you have achieved in New York,’ wrote Admiral Godfrey. ‘As the prototype of what such an organisation should be, I consider it beyond praise.’ F. T. ‘Tommy’ Davies, a senior SOE man, who had begun in Laurence Grand’s Section D, was ‘much impressed’ by the ‘very harmonious relationship’ between BSC’s three sections of SIS, Security and SOE and claimed that an ‘immense advantage’ was gained ‘by a quick and complete inter-change of intelligence’.15 When Richard Gambier-Parry visited BSC in late 1941, he came away very struck by Stephenson’s ‘immense application, photographic memory and driving force’, and spoke highly of the overall efficiency of the operation, as well as the excellent relations both within its headquarters and between it and the numerous agencies with which it liaised.
But once the USA came into the war much of BSC’s security and intelligence work could legitimately be taken over by the FBI and other United States agencies. Indeed, an irony of the USA becoming an ally at all was that the State Department and United States service departments’ consequent determination to be the controlling influence in the western hemisphere, and to stop all foreign and clandestine activities in the USA, whether by friend or foe, actually threatened BSC’s existence. As Stephenson reported to Menzies in January 1942, the so-called McKellar Bill then before Congress would require the registration of all ‘foreign agents’ and the detailed disclosure of particulars concerning agents’ appointment, remuneration, business and activity. This, wrote Stephenson, ‘might render work of this office in U.S.A. impossible as it is obviously inadmissible that all our records and other material should be made public’. Menzies was less worried, however. He thought the bill did ‘not in fact appear to curtail the activities of S.I.S., since you obtain moneys from the Embassy which need not pass through any bank. Your agents are all secret men unknown to any person outside the organisation and it should be impossible for the Americans to check up on their activities.’ In any case, ‘your S.I.S. activities are not now very great, since all Fighting Force information obtained from American sources should be forwarded through the British Missions in Washington’, which had been formed ‘now that America is in the war’. Nevertheless, after some vigorous lobbying by Stephenson and others, the bill was amended so that agents of the Allied ‘United Nations’ would be exempt from registration and need only report in private to their own embassy.
By mid-1942 BSC had passed its zenith (although Stephenson stayed on until the organisation was wound up in 1945). In October 1942 Menzies responded to a request from Stephenson for additional staff with the unwelcome news that he was considering whether ‘your already large staff should not be reduced rather than increased’. By the New Year, after Air Commodore Payne (Deputy Director/Air) had been out to inspect the SIS stations in the Americas and had discussed the situation with Ellis, Menzies was taking a harder line. ‘I am disturbed by the size of the S.I.S. staff in your New York and Washington offices,’ he wired on 2 January 1943. He thought there was not ‘now any justification for increasing the staff at S.I.S. stations in Central and South America’ and bluntly instructed Stephenson ‘to effect a 25% reduction in the executive staffs, and a 25% reduction in the clerical personnel’ of the New York and Washington offices by 31 March. Stephenson protested (with some reason) that ‘figure of 25 percent seems arbitrary and haphazard without basis on which it is computed’, and, noting that he had a total of twelve SIS executive personnel (there were about the same number of clerical staff), a 25 per cent cut would mean a reduction of three officers. He proposed, nevertheless, reductions in staff dealing with South American work, but complained about Payne’s evidently adverse report (‘pettifogging charges based on malicious gossip which seemingly motivated misrepresentation of our activities’), and warned that ‘should B.S.C.’s position here become sufficiently weak then real danger’ would be the gradual ‘subordination of our established position in this ?entire hemisphere to Jones [Hoover]’. This final point appears to have struck home in London, as, although there was a gradual reduction of the SIS presence in the USA, Menzies did not press the need for drastic cuts.
British Security Co-ordination organisation chart, June 1944, showing the wide range of activities within William Stephenson’s North American empire.
BSC’s intelligence work
Beyond the BSC Official History of 1945, clearly designed to show the organisation in the best possible light and based on records which were subsequently destroyed, no comprehensive record exists of its work. Although a sizeable proportion of the many thousands of telegrams between New York and London have been retained, very few of the more substantive letters and reports that went by diplomatic bag appear to have survived. One ‘annual report’ (it is not clear how many of these there were in all), however, exists. Completed in June 1944 and covering a period from March 1943, it provides a useful picture of BSC’s intelligence work during the second half of the war. Within the intelligence branch three sections (each with two officers) actively processed various kinds of information. The Reporting Section handled ‘European theatre reports obtained from 48-land [USA] sources’, prepared the Western Hemisphere Weekly Intelligence Bulletin, compiled ‘data pertaining to 48-land politics’ and had ‘liaison duties’. By mid-1944 the first of these had effectively been superseded by the work of the OSS London office, through which an increasing volume of reports were being channelled. Valentine Vivian thought that the Western Hemisphere Bulletin, while ‘well prepared’ and ‘interesting’, was ‘not an S.I.S. function’ and ‘not worth what it costs’. A similar observation might be made about the political reporting, which was more properly embassy work, and in any case was ‘not usually sent to Headquarters in the form of reports’ but was merely ‘available as background material etc’.
The ‘Superintendent’s section’, though ‘for all practical purposes [a] part of the B.S.C. organisation’, handled material from the Latin American stations and in fact reported directly to London, while circulating some relevant reports locally and to Canada. The Economic Section supplied information about the USA and Latin America for the Ministry of Economic Warfare in London. Among the material provided was intelligence about the activities of the United States Alien Property Custodian, which had control of enemy companies, such as the German chemical concern IG Farben. Aware that the Custodian had ‘embarked upon an ambitious scheme’ for increasing exports to Latin America, and ‘mindful of the fact that some of these [enemy] companies had been restored to German control after the last war’, the Economic Section 4 ‘decided to keep a covert eye on the Custodian’s activities’. It was ascertained that he was negotiating supply arrangements with companies in Mexico, Brazil and Colombia, ‘a development which was pregnant with undesirable implications’. Little, if any, of this had been reported by the Custodian to the British ambassador, ‘but H.M.G. was kept informed by Section 4’.
The largest SIS section, with five officers, dealt with ‘XB’: counter-intelligence and ‘enemy activities and subversive activity’. The report asserted that among the ‘tangible results’ of XB work was the ‘arrest, and/ or prosecution and conviction’ by the US authorities of ‘seven key enemy agents’ and some twenty associates. The section naturally liaised closely with the FBI, and from October 1943 had been jointly investigating Communist activities, especially in South America. One longstanding interest of SIS in North America was ‘Indian activities’, and ‘an up to date card index’ of Indian nationalist and other suspects had been compiled, drawing principally on official United States sources. During ‘recent months’, however, there had been ‘a noticeable reluctance on the part of U.S. official and other circles to collaborate with information relating to British Indian nationals’. This was felt to be due ‘to the latent American dislike of the popular conception of British imperialist suppression of Indian nationalist aspirations’, rather than ‘any officially inspired policy’. This work, in any case, had been the responsibility of an individual officer who had returned to England, and the study of Indian activities was scheduled to cease at the end of June 1944.
William Stephenson’s 1945 Official History asserts that among BSC’s most significant achievements was the penetration of the Italian, French and Spanish embassy staffs in Washington, while, thanks to the amorous activities of agent ‘Cynthia’, both the French and Italian naval cyphers were obtained. The history also maintains that Cynthia was responsible for short-circuiting an Italian attempt to scuttle merchant ships interned in US ports. The SIS files contain nothing about any role Cynthia may have had against the Italians but there is some material to corroborate her part concerning the Vichy French. A report from Lisbon in October 1940 noted that Cynthia (Mrs Elizabeth Pack, an American married to a British diplomat, who had worked for SIS in Poland before the war) was ‘on a visit from Washington’. Lisbon raised the possibility of her again being useful to the Service, noting that she was ‘great friends’ with a strongly anglophile American naval intelligence officer. ‘He is aged about 40, unmarried; and she is undoubtedly rather attractive.’ The officer and some of his colleagues ‘were apparently anxious to be of use to England’ and had offered to give her information for the British authorities. London passed on the contact to Stephenson who was given permission in March 1941 to employ her at a salary of $250 per month ‘for a three months’ probationary period to cover diplomatic and inside foreign circles in 48-land capital’.
According to the BSC History, Cynthia began an affair with the Vichy press attaché, Charles Brousse, in the early summer of 1941 and subsequently provided copious amounts of information from the Washington embassy for SIS, so much so that Menzies complained about the volume of material, asking 48000 to be more selective and concentrate on United States-French relations and telegrams from the French naval attaché. In June 1942 he particularly requested information about a new cypher the ambassador and naval attaché were using. As narrated by the BSC History, Cynthia and Brousse masqueraded as lovers in order to spend nights in the embassy and organise it so that a locksmith could get access to the safe. New York reported that on the first attempt it took too long to open the safe, which was ascribed to Cynthia’s ‘nervousness’, and there was no time to make photostats of the code-books. The History relates that there was a second, successful attempt (and it includes two photographs of the Vichy cyphers), but there is no independent confirmation of this in the archives. 16
SIS in Latin America
The BSC Report for 1943-4 estimated that the annual total expenditure on all SIS’s Latin and South American stations came to something just short of £200,000 (£6,600,000 today). Demonstrating the huge expansion in activity across the hemisphere, this was well over ten times the budget allocated in 1939-40 for the whole region. In the spring of 1938 a local British resident, Captain Reginald ‘Rex’ Miller, had been appointed to Montevideo with cover as Civilian Assistant to the Naval Attachés in South America. He would, wrote Gladwyn Jebb from the Foreign Office, ‘perform certain special duties in connection with Intelligence matters. It is not desired to give any more publicity to this appointment than can be avoided.’ Miller was a Spanish-speaking businessman, and, although he had no previous experience of intelligence work, he did very well in South America where he remained until 1946.
Beyond the gathering of political and economic intelligence, the wartime work of SIS’s South American stations was of three main types. First was naval intelligence, involving, as London instructed Panama in September 1939, ‘penetration of Mexico to watch German activities especially supplies to raiders and submarines’, or as Miller put it in a report on Uruguay in February 1940, ‘investigating the activities of the German Legation and their possible relationship to maritime alarms, excursions, movements, etc.’. The second included monitoring and attempting to penetrate the sizeable local Axis communities, identifying enemy intelligence agents and assessing threats to Allied political and economic interests. Third was a range of other covert activities, sometimes special operations alongside SOE personnel who were run out of Stephenson’s BSC office in New York. Of these, naval intelligence, at least in the first half of the war, absorbed the greatest amount of time and money. Some matters were excluded from the Service’s purview, presumably not having been raised by customer departments. In 1943, for example, London queried a proposal to engage a Peruvian agent involved in the drug business on the grounds that ‘we are not (repeat not) particularly interested in the manufacture and export of cocaine’.
Miller’s SIS work naturally intensified after the outbreak of war. On 25 September the Foreign Office were informed that he had deployed agents to gather intelligence for the Ministry of Economic Warfare. By October he was complaining that some of his agents were overworked, and at the beginning of December he asked for a full-time assistant to run SIS work in Brazil. In December the naval attaché in Buenos Aires worried about Miller’s health breaking down under the strain of overwork. This was especially important as the majority of the attaché’s information ‘on enemy movements’ came from sources under Miller’s control. ‘That part of his organisation that deals with enemy activities within his countries’, claimed the attaché, ‘provides material of the greatest use, the ultimate effect of which it may be hard to exaggerate.’ The Admiralty view seems to have been decisive and Miller got his assistant. At the beginning of 1940 Miller, with two secretaries in his office, secured permission to spend up to £160 a month on a network of a head agent and eight under-agents to target Nazi organisations in Uruguay. Five months on he raised the problem of underfunding in Chile, where he was faced with an ‘exceedingly efficient and co-ordinated German penetration’. Here his SIS organisation of ‘some eight to ten members’, costing £150 a month, could not ‘do more than cramp the enemy’s style’. In November 1940 Menzies approved a proposal from Miller for an officer to run operations in Chile, Peru and Bolivia, and in February 1941 Major Henry Higman (who had briefly been Passport Control Officer in Madrid and had been working in Head Office) was appointed as ‘76000’ to head an independent station at Santiago.
Admiralty concerns about the region were underpinned by the Battle of the River Plate, when British warships forced the German pocket-battleship Admiral Graf Spee to take refuge in Uruguayan territorial waters, where it was scuttled on 17 December 1939. Although this was a rare early success in the war, the mere presence of the German ship in the South Atlantic sharpened fears that other enemy warships, including submarines and disguised armed merchant-raiders, sheltering and even reprovisioning in remote parts of the South American coast, could operate in the area, threatening vital British sea-communications. With the Mediterranean effectively closed to British merchant traffic, vessels sailing to the Middle East and India, as well as the Far East and Australasia, had to go round the Cape. By the end of 1940, indeed, German raiders, operating chiefly in the Atlantic and Indian Oceans, had caused the loss of fifty-four merchant ships totalling 367,000 tons.17
In May 1940 Miller reported that a ship-watching service had been established on the Argentine coast of Patagonia, but with a long coastline, a very scattered population and only eleven sub-agents the task was one of ‘considerable difficulty’. Miller had to depend mainly on ‘a few isolated Englishmen working farms on or near the coast’ and it was ‘not a practical matter to draft strange agents into these areas of few inhabitants. Hundreds would be required to assure any certainty of results.’ He raised ‘the possibility of equipping ocean going fishing craft for this purpose’. The following month a sub-agent reviewed the position in Chile, with similar challenges of a long coastline and scattered population. In the province of Aysen, eight hundred miles south of Santiago, moreover, there was ‘a large proportion of German settlers’ and the previous summer ‘a party of Germans supposed to be a scientific expedition’ had ‘explored the province’ and, ‘no doubt, mapped the country very thoroughly’. This work, noted the report ominously, was not ‘on behalf of the Chilean Government’. As the establishment of a shore organisation was ‘a physical impossibility’, Miller suggested the alternatives of keeping watch by sea or air.
In London this was interpreted as a firm proposal for coast-watching from the air. Reflecting that the cost ‘of such a service would be very considerable’, SIS asked the Admiralty’s opinion ‘as to its desirability and value’. Meanwhile Miller proposed an ad hoc arrangement by placing an agent on a local oil company plane engaged in survey work. This was enthusiastically welcomed by the Admiralty in August 1940, ‘as there is a raider somewhere in these parts now and it might be hiding in some uninhabited inlet in Patagonia’. But the arrangement was only a stop-gap and in December the Admiralty issued an explicit instruction to SIS to make searches by aircraft ‘of the coast lines of East South America, including Southern Brazil, Argentine and the Terra del Fuego – both Argentine and Chilean’. This was easier said than done. Herbert Taylor, head of the American section in Broadway, sounded out an oil company executive who estimated that, apart from any local political problems which the scheme might encounter, it would cost £10,000 to set up and run in the first year. In January 1941 Taylor noted that ‘the problem is obviously bristling with difficulties’, but since the Admiralty were ‘most anxious for something to be done’, he thought ‘we must explore every possibility before saying we are unable to help’.
Miller in Montevideo came up with a solution which involved buying a plane for the local manager of an English-owned sheep farm in the southern Argentine. For the rest of the Patagonian coast he believed that commercial pilots flying in the area ‘could be persuaded to act as observers for monthly retaining fee’ and to cover the Chilean coast funding could be provided for a local British ranch owner ‘nominally [to] purchase an amphibian aeroplane for his own use’. Miller estimated that, ‘excluding cost of aircraft’, it would only cost £2,500 per annum. Having secured Foreign Office and Admiralty approval, the purchase of a plane was agreed in March 1941. The business, however, dragged on for some time. It was argued that getting a plane from the USA would be ‘far quicker’ than using British channels. ‘If the Air Ministry is brought into it,’ minuted one official, ‘and then M.A.P. [Ministry of Aircraft Production], it would seem that we will just about be getting approval for the purchase by the time the war is due to end.’ After a plane had been ordered (from the USA), but not delivered, some local British supporters offered to buy one themselves ‘as part of their war contribution’, which Miller gladly accepted. Meanwhile hangars and landing-strips had to be constructed at farms down the coast, and insurance (a nice touch) arranged for both plane and pilots. On 13 December 1941 the first survey was run. ‘Source’, reported Miller, ‘was not able to fly over all the coast line but was able to see the greater part. There was nothing to report.’ He speculated that the existence of a British plane flying over the coast at irregular intervals ‘may act as a deterrent to enemy activities’. In London Taylor said the report was ‘of considerable interest and we are very glad that this reconnaissance has now got under way’. In fact, no raiders or submarines were spotted by subsequent flights either. A similar coast-watching operation in Chile, involving both a plane and an eighty-ton schooner, also failed to spot any enemy activity, though a Chilean police source in November 1941 provided ‘reliable information to the effect that a submarine of unknown nationality had been reported east of Castro’, which suggested that the exercise might not have been at all futile.
The moment of maximum threat had passed, as, indeed, had the moment of maximum need in 1940-1 when, without the precious ‘Ultra’ signals intelligence obtained from German Enigma cyphers which later informed naval operations, the Admiralty were desperate for information from whatever source. Money was clearly no object. Early in 1941 Miller raised the possibility of buying information from a disaffected German embassy employee about the location of raiders, including the pocket-battleship Admiral Scheer. Despite ‘not attaching very much weight to the report’, Admiral Harwood, commander of the Royal Navy’s South American Division, thought this possible source of information should be followed up, ‘in view of the present raider position’. Miller reported that, having laid down certain conditions about the information – that it would have to be tested for genuineness and that ‘informant must state name of raider, armament, speed and approximate whereabouts’ over a period of fifteen days – a price of ‘105,000 Argentine pesos (approximately £6,250)’ had been quoted. Even though he also warned that ‘this might be a plant with object of:- 1. Leading our ships into a trap, or 2. Diverting them’, on 3 March London accepted the staggering cost (equivalent to something over £200,000 in current values) and Miller was instructed to go ahead.
Four days later there was information, though the source had not been able to fulfil all of Miller’s conditions. He stated that an 11,000-ton raider called Handelsschiff or Hilfskreuzer (literally, ‘merchant vessel’ and ‘auxilary cruiser’), flying the British flag, was scheduled to take on spares between 15 and 16 March at a specified position near Annobón island in the Gulf of Guinea off the African coast. ‘Failure of source to answer every question we asked’, suggested Miller, ‘seems to me to support his genuineness.’ Naturally the source was now keen to be paid. After waiting for two weeks without hearing anything, he put to Miller his suspicion that the raider had been caught by the Royal Navy, who were ‘keeping it dark and trying to swindle him’. He was, nevertheless, ‘still willing to play provided he is satisfied he is not being “done”’. London told Miller (for his personal information only) that ‘owing to raider activities attempt at interception had at last moment to be abandoned’, but he could tell his source that ‘owing to last minute mechanical breakdown his story could not be proved or disproved’, and that ‘at your discretion’ he could ‘pay source up to five hundred (repeat five hundred) pounds as token of good faith’. By committing what was still a very substantial sum of money (equivalent to over £18,000) just to keep him sweet, it is clear that Broadway not only regarded Miller’s German embassy source as highly promising, but was also extremely keen to acquire this particular kind of naval intelligence. The episode illustrates the lengths to which the Service was prepared to go when presented with the possibility of recruiting one of those very rare individual agents apparently in a position to provide highly specific information which could be used directly by the armed forces for operational purposes. But, for whatever reason (the archives do not reveal whether the £500 was paid or not), the source dried up and SIS had to fall back on more generalised, and inevitably much more chancy, coast-watching networks to keep a lookout for German raiders.
After Pearl Harbor there was an intensification of intelligence interest in the Argentine and Chile. It was thought they would ‘offer better opportunities’ than other South American countries since they were the only ones that maintained diplomatic relations with Axis Powers. In February 1942 the Air Ministry supplied a questionnaire on the Japanese aircraft industry; the War Office wanted any travellers coming from Japan to be quizzed about troop sightings (‘Did you observe at ports or there [sic] vicinity troops in tropical kit, also tanks?’); SIS’s Economic Section wanted general information about Japanese industry and the supply of strategic commodities, as well as any ‘expedients adopted by enemy concerns to elude our and American economic control’; while the counter-espionage Section V wanted ‘detailed information’ regarding ‘Japanese, German and Italian espionage organisations, and on their use of neutral diplomatic communications, particularly Spanish bags’. Undoubtedly reflecting SIS’s own activities, Section V insisted that ‘the influence of axis organisations on local police forces must be constantly watched’ and also raised the possibility of ‘the use of bribery in high places’.
In March 1942, arguing that ‘Argentine is assuming increased importance, not so much for fear of axis internal coups but because she is almost only remaining country where enemy agents can operate with comparative freedom’, Miller asked for an additional £885 a month to investigate Japanese activities there. When questions were raised in London about the cost, Taylor defended Miller by noting that ‘Japanese activities’ could ‘include all sorts of things’, such as ‘establishing naval bases for raiders’, and that, in any case, ‘75000 is an experienced representative and I think time has shown that we may trust him to spend money wisely.’ A year later Miller re-emphasised the importance of work in the Argentine, ‘the one remaining free territory for enemy activities in this hemisphere’. The enemy, moreover, were ‘well entrenched, spend lavishly, and have many years start on us’. He also warned about conceding influence in the region to the Americans, and was ‘more convinced than ever that so far as this country [the United Kingdom] is concerned, grouping of the whole of this Continent, regardless of race or prejudice, as a 48-land [USA] sphere of influence in which we are only secondarily interested’ was ‘to build up a policy on a false thesis. We have had’, he continued, ‘and we still have influence in this country’ which ‘we cannot transfer to our 48-land Allies even if we could’.
Another of Miller’s tasks was making clandestine acquisitions for the British Purchasing Commission in New York. Among the highest-priority Ministry of Supply requirements were metric machine-tool parts, essential, for example, for the manufacture of Bofors anti-aircraft guns. These could be obtained only from ‘machine and tool makers’ in Switzerland, who needed German transit permits before the goods could be exported. SIS in Montevideo, therefore, was endeavouring to secure them ‘through Argentine “cloak” firms’. Miller also obtained other items, such as watches and diamonds, more straightforwardly from smugglers. When in April 1942 he asked for additional staff to help make these acquisitions, London queried whether SIS should be doing this at all. Conceding that the work was ‘of great importance to the war effort’, Valentine Vivian argued that it still ‘didn’t alter the fact that it is well outside our charter’. ‘Is it sound’, he asked, ‘from the S.I.S. viewpoint that 75000 shd be doing this fraudulent trading and smuggling? It might easily draw attention to his more legitimate work and might well lay him open to a request to leave the country.’ On the other hand, he recognised that Miller might be ‘the only man on the spot with the “noûs” and drive to do it’. So it appeared to be, and it was decided simply to charge the cost of additional office staff to the Ministry of Economic Warfare.
SIS’s relations with British diplomats in South America were generally quite good. Early in 1942, reflecting on his three and a half years running the main regional station, Reginald Miller noted that, despite his feeling that ambassadors were ‘inclined to be jealous of their privileges’, he had never ‘had any difficulty’ with them, partly, he thought, ‘because I have adopted a co-operative attitude’. Whenever he was in Buenos Aires the ambassador did ‘not hesitate to discuss with me and often asks my views on any matter of interest’. In Montevideo, moreover, he found that the new ambassador ‘looks upon me almost as his unofficial counsellor’, a state of affairs which had ‘definite advantages for our organisation’. This could have disadvantages, as in Lima, where the SIS representative complained to Miller in May 1940 that the embassy staff had ‘a tendency to look upon him as a local private detective’. But Miller recognised the importance of keeping professional diplomats sweet and in May 1945 reported that Evelyn Shuckburgh, who had been chargé d’affaires in Buenos Aires for over a year, would shortly be in London en route to a new posting in Prague. He was ‘still a young man’ (in his mid-thirties), but ‘an extremely able one, and will I think go a long way in his profession’. As he was ‘most friendlily disposed towards our Organization and even has no little respect for its efficiency’, Miller thought it would be ‘a happy idea for him to have the pleasure of a talk with somebody at H.Q.’. This suggestion may not have been entirely disinterested as when ‘P.12’ did see him in July Shuckburgh ‘expressed great appreciation for the work of 75000’. But Miller’s prediction was sound, as Shuckburgh (later Sir Evelyn) continued on a distinguished Foreign Office career, serving as the Foreign Secretary’s principal private secretary in the early 1950s and later as ambassador to Italy.
British diplomats in the region were not averse to doing a bit of espionage on their own account, as Henry Higman discovered when he arrived in Chile in July 1941. So far as the entire British mission in Santiago was concerned, ‘secret intelligence’, he reported, was regarded as ‘just everybody’s business’. The existing head agent (theoretically being run by Miller in Montevideo) was not very good, with the result that the naval attaché had effectively become the SIS representative, and had developed a network of agents of his own. Higman rightly felt that combining covert work of this sort with conventional attaché duties was extremely risky, but was faced with the ‘very real’ difficulty that his colleague was ‘now so mixed up with and enthusiastic about “C” [secret service work] that he may feel sore if he feels that he is not being kept fully conversant with future developments’. The first secretary, furthermore, was operating an extensive intelligence-gathering operation which Higman was ‘supposed [to] take over as a going concern’. This included ‘running, and contacting quite openly – or at least with the most rudimentary precautions for security – a number of very doubtful foreign agents’, and, worst of all, an elaborate telephone-tapping operation actually located in the British embassy itself. Higman was told that tapping the phone of a German-owned bank had produced ‘most valuable’ economic intelligence, but he was extremely concerned about the extent to which the position and security of the embassy had already been compromised.
Higman set to work sorting out the SIS operation in Chile, laying off some of the unsatisfactory agents he had inherited, who included a ‘French morphine addict’ claiming close contact with the German intelligence service, an anti-Hitler former German army officer and a ‘Chillian [sic] Irishman’. He wanted to get the telephone-tapping operation out of the embassy building, but when he found that the cables could not be moved without arousing suspicion, a special room was constructed in the basement. By December 1941 the calls of the German embassy propaganda office and two banks were regularly being monitored. When the Santiago station was closed down at the end of 1943 and Higman brought home, he reported that telephone and postal interception had been among the best sources of intelligence. Up to eight phone lines could be monitored by two operators working simultaneously, and for postal work Higman said that he could ‘obtain, examine, photostat and return to circulation mail addressed to any Post Box’.
Relations with the diplomats could be upset by the most unexpected things. In March 1942 the British consul-general in New York despatched thirteen crates of SIS wireless equipment to Chile. Although he had been instructed to label them as ‘office furniture’, the shipping documents (addressed to the British ambassador) read: ‘Secret English confidential material, nett weight not revealed, declarable value not revealed’. This ‘act of stupidity’, wrote Menzies, ‘may annoy the Ambassador and prejudice him against my representative in Santiago although it was no fault of his’. Sometimes, too, things just went wrong, as when in September Higman’s deputy in Peru reported a ‘quarrel ending in blows between his head agent 414 and a dismissed sub-agent 416’. The head agent, it seemed, had been swindling the sub-agents, ‘retaining ?part of their pay’. In revenge the sub-agent had ‘initiated proceedings against 414 citing British ?Consulate as supposed employer of 414’. A local lawyer had been in touch with the consulate who were ‘sending representative to disclaim such fantastic story’. This set the alarm bells ringing in London where Taylor worried about the potentially damaging fall-out of the affair, especially back in Britain. Reflecting that it ‘may have serious repercussions with YP Lima [the British minister]’, he suggested that Higman go immediately to Peru to handle the matter, ‘the object being that YP Lima should not repeat not send telegrams to ZP [the Foreign Office] on this subject if it can be avoided’. Happily, Higman was able to report ‘situation seems less serious than supposed’; the minister was ‘most understanding and helpful and has not repeat not telegraphed ZP’.
In 1942 it was decided to post a representative to Cuba for counter-espionage work. The method used to establish secure commercial cover illustrates how readily the Service was able to work with private companies, especially in wartime. The officer concerned had previously worked in Havana for a British firm. Felix Cowgill of Section V decided that the managing director of the company should be ‘given some of the reasons why his re-employment would be in the national interest’ and be asked ‘to have the idea that he again needs a representative in Cuba in view of the expanding possibilities there. After due consideration he might decide that [the officer] is the very man for the job.’ If this were done, argued Cowgill, it would reduce talk in the company office ‘to a minimum’.18 In another case, where a British firm were going to withdraw their representative (who was a very productive SIS source) from the Argentine because of a wartime drop in business, the Service persuaded them to keep him on by agreeing to meet half the costs of his salary.
Across South America SIS successfully identified and countered Axis agents. In March 1940 Miller reported one agent foiling the attempted sabotage of a British vessel in Montevideo. A sub-agent ‘hit the saboteur over the head with a sandbag, stole his suitcase and is forwarding one of the bombs home to the D.N.I. now’. In May he ‘obtained shorthand notes of recent inner Nazi party meetings in Buenos Ayres which indicates considerable fifth column progress in Argentine’, and in October he reported efforts to penetrate the German embassy in Buenos Aires, ‘hoping to make contact with’ an embassy telephonist ‘through the German mistress of a well known Englishman’ in the city. None of these individuals would necessarily have been aware of SIS’s interest, and, indeed, if they were, it might have made it more difficult to exploit them for intelligence purposes. From within the sizeable local Ukrainian community ‘reliable and sound information’ had also been obtained about German efforts to persuade them ‘to become Nazi-minded’. Using press and shipping-office sources, Miller was ‘receiving copies of the majority of the neutral shipping passenger lists, and through [agent] 75141 and his contacts we are able to obtain very accurate details of outgoing passengers and both in-coming and outgoing cargoes of a suspicious nature’. Miller emphasised that collating this material was quite a challenge. ‘The sorting of masses of trivial information,’ he wrote, ‘the card-indexing of hundreds of names, a daily report of two or three pages to me, the typing out of passenger lists, the translation of data received in Spanish and, in fact, the hundred and one details inherent in any form of widespread organisation, all take up considerable time.’
‘Purple primers’, collating SIS’s information about suspected enemy agents, were prepared for many neutral countries. This extract is from the Brazil volume.
One result of this kind of work – repeated in station after station – was the so-called ‘purple primers’ (after the colour of their binding), country-by-country lists of enemy personnel, of which a number have survived in the archives. In a Uruguay example of October 1943 individuals were classified under five headings: A – ‘Known and suspect espionage agents’; B – ‘Known and suspect agents, informants and sub-agents’; C – ‘Axis or pro-Axis persons using prominent positions as cover for subversive activities’; D – ‘Persons acting on behalf of enemy interests’; and E – ‘suspect fifth columnists’. In the first two categories were ‘all our registered XB cases’ (counter-espionage targets), while the other classifications ‘deal with persons who we believe either give assistance to them or who themselves are in line for a higher classification’. Of 174 people in the Uruguay primer, fifteen were in category A and thirty-eight in category B. By contrast, a December 1943 primer for Brazil included 238 category A people, though unlike the Uruguay volume it listed a large number who had been tried and convicted of espionage in the local courts. They did things differently in Peru where the primer was divided up into subject categories, such as ‘Commercial espionage’, ‘Gestapo’, ‘Peruvian Axis collaborators’, ‘Sabotage’ and so on. Reflecting the success of both Allied and indigenous efforts to curtail Axis activities in the country, the Lima station reported that, of eighty-seven subjects identified in 1941, forty-three had been ‘deported or repatriated’.
Other work in South America shaded into special operations territory, and here lines were sometimes crossed with operations run out of 48000 in New York. In March 1941 the SIS representative in Rio de Janeiro (where a separate station had been established in April 1940) complained to London that an officer, ‘Agent 75265’, had been sent to him from New York to ‘be employed by me and at the same time undertake work for 48,000 of nature of which I am ignorant’. Agent 75265, in fact, was involved in a proposed SOE operation to sabotage the Italian airline LATI (Linee Aeree Transcontinentali Italiane) which operated between Italy and Brazil. The service was regarded as a major loophole in the British blockade of Nazi-occupied Europe, carrying ‘German and Italian diplomatic bags, couriers, agents, diamonds, platinum, mica, Bayer chemicals, propaganda films, books and all sorts of men and materials back and forth over the route’. In part because one of the Brazilian President Vargas’s sons-in-law was chief technical director of the airline, the Brazilians refused to restrict LATI in any way. The Rio head of station argued that sabotage would only temporarily interfere with the service, and might, moreover, give the Germans in Brazil, who were ‘in a position [to] do more damage to our interests here than we are to theirs’, an excuse to indulge in reciprocal sabotage. After SOE agreed to drop this project, BSC in New York came up with another scheme to forge a letter from the airline’s president in Italy to an Italian executive in Brazil. At BSC (using a genuine letter acquired by SIS in Brazil) much work was put into getting paper and other details absolutely right. By November 1941 a letter had been produced insulting the Brazilian President (the ‘little fat man’) and aligning LATI behind Brazilian opposition groups. After the letter was leaked to the Brazilians through the American embassy in Rio (the Americans being completely fooled into thinking it genuine) the desired result was obtained.19 LATI was closed down in Brazil and all its assets seized.
In early 1942 when Brazil broke off relations with the Axis powers, SIS in Rio reported the American embassy’s opinion that the ‘LATI letter’ had ‘been one of the main factors in persuading President Vargas to turn against the enemy’. SIS, which never came clean to the Americans about its role in the affair, took some quiet satisfaction in bamboozling their diplomats in Brazil as (according to the Rio head of station) the US ambassador, Jefferson Caffery, and some of his staff were strongly anglophobic Irish-Americans who indulged in constant anti-British activities, even after the USA had entered the war. Despite this local Anglo-American tension, the position throughout the region, even before Pearl Harbor, was one of close co-operation. In November 1940 London had laid down ‘as a general principle’ that ‘all information of interest to Americans should be shown to them’. At the end of January 1942 the SIS representative in Rio again complained about SOE agents being sent to Brazil who ‘know too much about us; nor have they shown sufficient discretion. I consider that here at least S.I.S. is far more important than S.O. which must depend on S.I.S.’ By March SOE was pushing to extend its activities generally in South America, but the US State Department objected, and with South American governments beginning to line up on the Allied side, by late 1942 the Axis threat in the region was ebbing away. On 30 October Stephenson in New York wired Menzies that in view of improving coverage of SIS in South America ‘am proposing to close down SOE there’. Menzies telegraphed back: ‘Am convinced eminently sound proposal.’
SIS in the Far East 1939-41
Although Britain’s strategic priorities during the first two years of the war were naturally concentrated first on the threat to the United Kingdom itself and subsequently on its interests in the Middle East, Mediterranean and North Africa, the possibility of a direct Japanese challenge in the Far East remained a worry. But there were few enough resources to deploy in the region. At the start of the European war SIS had five main stations across the Far East. In Shanghai the veteran Harry Steptoe produced mostly political and economic information on China. Frank Hill at Peking (Beijing) was working mainly on military information from North China. At Hong Kong the responsibilities of a one-man station run by Alex Summers extended from northern French Indo-China in the west across southern China to Formosa (Taiwan) island in the east.20 A separate station was run by Lieutenant Commander Charles Drage, who had been based in Hong Kong since 1933 and had primary responsibility for Japanese military intelligence. By 1939 there was a rapidly growing demand for this, but one which SIS was ill equipped to meet. In the summer of 1940 Drage relocated to Singapore, whither the regional inter-service intelligence organisation, the Far East Combined Bureau, had moved the previous year. The Singapore station itself was headed by Major J. H. Green, an army officer with twenty years’ intelligence experience in Burma who had been appointed Assistant Defence Security Officer in 1938, and who was responsible for Burma, Malaya, Siam (Thailand) and French Indo-China. Stretched enough in Europe to respond to the challenges of Germany and Italy, SIS, like every other part of the British defence and security community, had little to spare for the Far East, where the probability of full-scale war with Japan was widely (and somewhat complacently) discounted.
In 1940 two additional stations were established. One was at Chungking (Chongqing) where, with cover as the press attaché at the British embassy, Walter Gordon Harmon’s primary (and difficult) role was liaison with Chiang Kai-shek’s Nationalist Chinese intelligence service. Harmon was an Englishman who had been born and bred in China, and had been employed in the Salt Gabelle, the body which administered the Chinese salt tax. The other station was at Manila, where Gerald Wilkinson, a British businessman based in the Philippines whose father had worked with Menzies during the First World War, was appointed SIS representative with responsibility (as Menzies told the Foreign Office) ‘mainly to find out certain information which the Ministry of Economic Warfare require’. Wilkinson, in fact, had been working under Hong Kong since 1936, briefed not only to cover the Philippines’ defences but also to work on the penetration of Japan. In October 1939 he had reported a contact who might be able to secure ‘a Japanese or Japanese-speaking Philippine ready to go to Japan and stay at some naval station with [the] object of gathering naval information’, but nothing appears to have resulted from this. In the meantime Wilkinson developed a close relationship with the American military authorities in the Philippines, which was later to prove very beneficial for Anglo-American liaison.
Apart from concentrating on Japan and Japanese targets in China, the SIS stations in the Far East were also asked for information about the USSR. Reflecting concerns arising from the Nazi-Soviet Pact, late in December 1939 Broadway announced that ‘the penetration of Vladivostock is now of high importance not only for Russian information but as a possible German base’. It instructed the Far Eastern stations to ‘telegraph what prospects you see of getting suitable sources for obtaining the above information in the near future’. Only two of the stations appear to have responded positively. Singapore signalled that a ‘local Russian’ had volunteered to work for them, and asked the Shanghai station if visas for Vladivostok were obtainable and what steamship sailings there were to the Russian port. After Shanghai replied to both questions in the negative the potential agent rejected the mission as not being ‘a practicable proposition’. The response from Hong Kong was initially more hopeful as the SIS representative there was currently ‘negotiating for purchase of up to date plans of Vladivostock’. Although the source (a White Russian) was ‘an utter blackguard’, he had ‘always delivered the goods hitherto’. A ‘report on Vladivostock Harbours’ was indeed delivered in September 1940, but a later note (which described the Russian as both a ‘chronic alcoholic’ and ‘totally unreliable’) said that it ‘proved of little value’.
One of the problems for SIS in the region was that the very longevity of its representatives, coupled with the general gossipy lack of security that pervaded official and expatriate circles in the Far East and a near-fatal tendency to underestimate the enemy, meant that the identities of SIS representatives were widely known and their efforts to step up operations in 1939-40 readily compromised. One officer at Broadway, who had served in the Tokyo embassy in 1940, ruefully reflected afterwards that the Japanese police had been able to give him ‘a fairly detailed outline of our S.I.S. work in China’. The activities of Steptoe and Hill, he added, were ‘known to most European residents in the Far East, for so-called Embassy cover does not mean a great deal unless a man does some definite Embassy job in addition to S.I.S. work’. By 1939 the Service’s Japanese and Formosan port-watching organisation had moved to Singapore, but here it ran into security difficulties when members of the local Jewish community denounced Drage’s South African-born assistant to the police as a Nazi agent. In January 1940 Drage moved back to Hong Kong, but seems not to have been able to maintain the flow of reports, many of which had been marked in London as ‘of considerable value’. Additional efforts to penetrate Japan were uniformly unsuccessful. Drage attempted to work up a network based in the Japanese community on the United States Pacific coast, but it produced no more than a few preliminary reports. Further evidence of how vigilant and suspicious the Japanese security services were of British residents was the arrest in January 1940 of one Vincent Peters, and his subsequent eight-year prison sentence ‘for military and economic espionage’.21
In July 1940 the Chief of the Intelligence Staff on the Far East Combined Bureau, Captain Wylie, delivered an extremely critical review of SIS’s work in the region. Not only was the information the Service provided poor, but the SIS representatives themselves barely co-operated with each other. Wylie suggested that a regional director be appointed to sort out these problems.22 Menzies accepted the criticism and asked Godfrey Denham to review the position. Denham, a very experienced former head of station at Shanghai and Inspector-General of the Straits Settlements Police who had gone into business after retiring from the public service, visited Singapore in February 1941, agreed with Wylie that a regional controller was required to sort out the situation and, pressed by Menzies, took on the job himself. By August he was established within the Far East Combined Bureau (FECB) in Singapore with the station number ‘69000’ and had been directed by London to ‘control all the representatives in the Far East’, receive ‘the Bureau’s criticisms on their work’ and ‘obtain questionnaires’ for SIS.
While Denham was able to improve SIS’s general relations with the FECB, he was unable to do much about the dearth of Japanese military information. In October 1941 an FECB review of ‘sources of intelligence’ reported very unfavourably about the Service. There was the inevitable tension between the armed services’ urgent operational needs and the more reflective political intelligence which was SIS’s stock-in-trade. There was also a problem about the integration of SIS work with the intelligence effort as a whole, a difficulty exacerbated by the absence of any SIS representative on the FECB itself. The original idea had been for Denham to be a member of the Bureau, but this ‘had not been fully implemented’. The FECB view, however, was that naval and air officers ‘with up-to-date technical qualifications’ could usefully replace SIS personnel and, this being the case, it would actually neither be necessary nor desirable for SIS to be represented. The absence of SIS on the FECB may in turn have facilitated the sweeping criticisms of the Service in the review. SIS was seen as far too independent: ‘A great number of telegrams sent home to London direct from S.I.S. without previous reference to the F.E.C.B. seem far from the truth and wasteful of public money.’ It would be better if the ‘majority of S.I.S. reports’ were submitted to the FECB for comment prior to despatch to London.
The review went on to make specific criticisms of SIS coverage of the region. The ‘Northern Area – including Manchukuo’ (Manchuria) was ‘the least satisfactory of all. There is no doubt that the present Peking representative is incapable of carrying on the service, still less of developing it. In view of the importance of this station in event of a Russo-Japanese war, the appointment of a first-class man to Peking is of urgent importance.’ The situation in Japan and Japanese territories was a little more satisfactory. They were ‘being penetrated on a very small scale from Manila’, a slow process but one which ‘shows promise’. It was suggested that more information ‘could probably be obtained from Nanking’; south China and Thailand were ‘improving’; French Indo-China was ‘reasonably good’ but too dependent on French sources. Further afield, it was noted that ‘no air intelligence’ was received from SIS ‘regarding the U.S.S.R. East of Lake Baikal’. Finally, the report reflected circumspectly on the provision of signals intelligence, but here again there was nothing positive to report about SIS, which had ‘at no time produced anything of value’.