Fighting to Lose (32 page)

Stephenson, it should be explained, was then nominally in charge of Britain’s covert counterattack against Axis activities in the Western Hemisphere. He was a millionaire Canadian in his late forties who had been named to the job personally by Churchill. Within a year, using mainly his own money, he had built up the formidable organization called British Security Coordination — usually just BSC — staffed mostly by Canadians and headquartered in the Rockefeller Centre in New York. However, while he certainly did lead the security and counter-espionage function of BSC, Charles Ellis was the actual MI6 chief for North America.

Until Ellis called on Foxworth, the FBI had understood that Popov was only passing through the United States on his way to Egypt. The Bureau had also been told by the British to expect him on August 12 at La Guardia Airport, but he had landed at nearby North Beach instead. This had led to the mix-up with the army and navy intelligence officers, embarrassing in an organization that prided itself on being methodical. A makeup meeting was swiftly arranged. FBI assistant director Earl Connelley sat down with Popov on August 18, along with Ellis and FBI special agent Charles Lanman. The session lasted three hours.

First of all, Popov reported being interviewed by two army/navy men whom he thought had been sent to meet him. He then described in detail his adventures in Portugal and the instructions he was given for his trip to the United States. He had been told to let the Germans know of his safe arrival by sending an invisible-ink letter. They would in turn reply with a cable, telling him how to get in touch with a fellow agent who would provide him with a transmitter. Popov displayed the torn half of a visiting card he was to show the agent when they met. His cipher was of the transposition type, keywords to be taken from the popular novel
Night and Day
, and his messages, either by letter or by radio, were to be in English or French, although English, wrote Connelley after, presented a “definite difficulty.”6

At the time he was working for the British authorities in England, they composed the messages for him in English, which he transmitted. However, in this connection, these messages were worded in very good English and definitely beyond what Mr. Popov’s capabilities are in handling the English language. This same idea will probably have to be pursued here in order that we can simulate the type of diction pursued previously in the messages prepared by the British …7

These were still early days for the FBI as a counter-espionage organization, so Connelley did not automatically assume — as he should have — that Popov must have been blown the moment the Germans received a message from him that was beyond his known English fluency.

When asked about the money in the briefcase, Popov told the FBI that $38,000 of it had come from the British, and that he was to deposit it for them in an American bank; $6,000 was from the Germans to finance his espionage operations, and the remaining $26,000 was his. Connelley had trouble getting his mind around the first item, probably because the FBI had considerable experience with organized crime and good relations with Treasury agents: usually when people launder large sums of their own money it is because it is counterfeit.

Connelley pressed Ellis to elaborate, but the MI6 man was evasive. He would not explain who Hamish Mitchell was either, or why he had accompanied Popov to his hotel. It was Popov, a few days later, who informed the FBI of Plan
Midas
and admitted that the $38,000 actually came from the Germans. He claimed that the idea was to deposit it in the United States, where it would be drawn on by a German spy in Britain whose cheques would be traced by British intelligence. Connelley was appalled. It was, he wrote to Hoover, “the most dangerous thing the British could have done, so far as the safety of Popov [was] concerned.”8

The actual scheme involved depositing the entire sum, all of it German money, into the account of a fictitious person who would pay the same amount in England to Wulf Schmidt, who then would serve as paymaster to Germany’s spies in Britain. MI5 planned to jot down their names when they collected their cash. Connelley would have been even more appalled had he known how silly
Midas
really was.

Ellis again brought with him photo-enlargements of the microdots containing the English-language questionnaire and Popov’s wireless transmission instructions. These Connelley attached to his report, not knowing that Hoover had already received the copies Ellis had given Foxworth. The next day, Lanman went around to Popov’s hotel and collected what microdots Popov still had, and his other espionage paraphernalia.9

There was an additional twist to Connelley’s interview with Popov that the FBI man could never have dreamed of. Popov was reciting his story in the presence of the man who was to be his North American spymaster for both the British and the Germans, Captain Charles Howard Ellis. Ellis — known as Dick or “Dickie” to his friends — was at that moment MI6’s senior representative in the United States and, apparently, Admiral Canaris’s top agent inside British intelligence.

Ellis, it must be said, was surely no Nazi. He was a forty-six-year-old Australian who had been wounded in action four times during the First World War. After joining MI6 in 1921, he spent fourteen years working in Berlin, Vienna, Geneva, and Paris, running White Russian agents against the Soviets. By 1938 he was back in London, running his own espionage service — the 22000 Organization — which then utilized Bill Stephenson’s international industrial intelligence network as well as agents in Europe of his own.10 These included two White Russians who Ellis had run against the Soviets during the 1920s. In 1938–39, he used this same pair to feed information to the Abwehr. His contact was Richard Protze, one of Canaris’s most trusted deputies. Protze ran his own espionage agency covering Belgium-Holland and reported directly to the admiral, inviting the conjecture that Ellis was likely acting as liaison between MI6 and anti-Nazi conspirators in the Abwehr.11

Connelley gave Popov a cautious thumbs-up. He suggested he should be kept under surveillance and his communications intercepted, but otherwise said he found no reason not to believe him. He confirmed Foxworth’s recommendation that the FBI take him on as an American double agent once clearance was obtained from Vincent Astor, then the local security and intelligence chief.

It should be explained that President Roosevelt and Victor Astor were close. Their families had Hudson Valley ties going back to colonial days and Vincent had inherited the family fortune of more than $75 million ($1 billion today) when his father, John Jacob Astor IV, went down with the
Titanic
. He and Roosevelt had played together as boys and as men often partied on Vincent’s yacht, where there was food, drink, and gaiety in abundance. In 1938, Roosevelt sent his friend with the yacht on a secret mission to spy out the Japanese military buildup in the Pacific, and that, plus other assignments closer to home, led him to name him, on March 19, 1941, “Area Controller for New York.” It was a euphemistic title that made Astor responsible for approving and coordinating the local intelligence-gathering activities of the army and navy, of the FBI, and of the State Department. He was given the naval rank of commander and attached to the Office of Naval Intelligence.

The Astor appointment was specifically aimed at squelching a nasty rivalry that had broken out at the beginning of 1941 between the FBI and the two fledgling New York–based special intelligence units set up by the army and navy. The first was run by a Colonel Frederick Sharp and the second, the navy’s Foreign Intelligence Unit, by a civilian industrialist named Wallace B. Phillips, who claimed to have operated his own spy network before the war. Sharp once warned a fellow officer that Astor “stands very close to the great white father so proceed with caution.” The navy had the same attitude, and presumably the FBI did as well.12

So, when Connelley learned that Popov had been interviewed at the Waldorf by officers attached to Sharp and Phillips, he had to ensure that Astor had no objections before proceeding. This clearance he obtained from Phillips, who reported that Astor had checked out Popov with British Security Coordination and he was deemed to be “O.K.” The FBI could have him.13

Popov was assigned his official FBI code name. It was nothing nearly as fancy as the “TRICYCLE” of the British: he became ND-63, for “National Defence Informant 63.” The German-language microdots and a vial of his secret ink were turned over to the FBI lab in Washington.14 Hoover, meanwhile, sent a photograph of the microdot-bearing telegram form and a sample microdot enlargement to the White House, noting it was “one of the methods used by the German espionage system in transmitting messages to its agents.” The translated sample did not include the questions dealing with Hawaii and this has been seen over the years as evidence that Hoover withheld vital information from the president. It is more likely that he knew Roosevelt had already seen the entire questionnaire, and chose to send an innocuous microdot example through regular channels.15

The military significance of the Hawaii questions would have been plain to Hoover, but it was nothing new. He had long been aware of German interest in the Pacific Fleet. The previous November, the FBI had been tipped off by the navy that intercepted and decoded radiograms sent by the Japanese consulate indicated a German couple, Otto and Friedel Kühn, were supplying it with naval intelligence. The FBI’s Honolulu office had been watching the pair ever since.16 Hoover, however, had ceded the counter-espionage lead in Hawaii to the navy. It was better qualified to evaluate the intelligence the Japanese were collecting. A naval power like Japan could be expected to want to keep track of foreign warships in the Pacific; it was properly up to the navy to decide when reasonable interest became alarming.17

What made the Hawaii portion of Popov’s questionnaire stand out, however, was its repeated request for sketches and the “exact position” of the key installations of Pearl Harbor and the surrounding airfields. Whether this rang any warning bells with Hoover is unknown, but what he thought would have made no difference anyway. The American military services were then fiercely territorial. If Hoover had presumed to comment on the threat implicit in Popov’s questionnaire, or had asked questions or given suggestions pertinent to the state of military preparedness in Hawaii, the army and navy brass would have gone through the roof. Hoover had got where he was with his political acumen; it was sufficient that his designated boss, Vincent Astor, knew about the questionnaire. From there, it was up to him to decide what to do with the information it contained.18

Hoover had further reason for reticence; like MI5 in England, the FBI was the target of a certain amount of snobbery. There was no shortage of the wealthy — Astor, Stephenson, Phillips — who wanted to dabble in espionage, but they shared no great appetite for police work. The FBI, like Scotland Yard, was first and above all an investigative agency primed to meticulously collect evidence that would stand up in court. It could be dull work, and for some on both sides of the Atlantic, it implied dull people.

So it was that when the British decided the Americans should have an overseas spy service along the lines of MI6, they ignored Hoover and promoted their own choice to start it up, a fifty-year-old First World War army hero and Wall Street lawyer by the name of William Donovan. The president had sent him to Britain on a fact-finding mission the year before, when things looked blackest, and he had come back with the declaration that Britain was “down but not out.”

A grateful British government thereafter vigorously sang his praises to the White House, through Stephenson in New York and by emissaries like the director of Naval Intelligence, Rear-Admiral John Godfrey, who visited Washington in the spring. In June 1941, Roosevelt named Donovan “coordinator of information,” another spy agency euphemism; his office was shortly to be renamed the Office for Strategic Services, or OSS, the forerunner of the post-war Central Intelligence Agency.

From the British perspective, the beauty of the president opting for Donovan was that he had no background in the black arts of espionage. MI6 could undertake to teach him, with a corresponding expectation of gaining influence over him.

Donovan’s appointment became official on July 15. He began with a small office, a few staff, no salary, and direct access to the president’s slush fund. Phillips, the wealthy civilian who headed the navy’s Foreign Intelligence Unit, and who had received the first reports on Popov at the Waldorf, transferred over to Donovan’s organization in late August as its first spy chief, mandated to develop spy networks around the world. Whatever he knew of Popov’s Pearl Harbor questionnaire he must have shared with Donovan.19

Donovan also needed to establish permanent liaison with British Security Coordination. This task he gave to Allen Dulles, a career diplomat and intelligence aficionado who took up quarters in Room 3603 of the Rockefeller Centre, in the suite of offices occupied by BSC.20 This put Dulles right down the hall, as it were, from Stephenson, who saw himself as Donovan’s mentor and who undertook to give him every assistance.

Having Dulles at the heart of BSC, however, had a more important advantage. Stephenson’s organization was connected by undersea transatlantic cable to MI6 in Britain and to the Government Code & Cipher School. It was a secure link, and permitted BSC to send raw wireless traffic collected by listening stations in Canada to GC&CS for processing, and to receive “Most Secret” material in return. To facilitate this, Donovan put his own man in London. On November 20, MI5’s counter-espionage chief, Guy Liddell, noted in his diary:

The Director-General asked me to come down and see William Dwight Whitney, who is Bill Donovan’s representative over here and will have a small staff working under him. He is to have an office somewhere in Bush House [home of the BBC] which will be for press and propaganda. This will act as cover. His main purpose is to collect as much vital information as he can which has any bearing on the part being played by the United States and the possibility of her entering the war. This information will go direct to Bill Donovan in special cipher for the President.21