The Defence of the Realm (31 page)

On 4 February 1925, following another meeting between ‘D' and a representative of the ‘Labour Group' (probably Ewer, once again), Ottaway
succeeded in following ‘A' (Walter Dale) to the Moorgate offices of the All-Russian Co-operative Society (ARCOS), whose ostensible purpose was to promote trade between Britain and Russia but which was also used as a front for Soviet intelligence operations. From ARCOS, still tailed by Ottaway, Dale moved on to Outer Temple, 222–225 Strand, which contained, among other offices, those of the Federated Press of America (FPA). The FPA's London office, opened in 1923 and run by Ewer, had little connection with its notional American parent company, and served mainly to provide journalistic cover for espionage. Tapping the FPA telephone line produced ‘immediate results', revealing calls to ARCOS, to prominent Communists and to at least one suspected Soviet intelligence operative.
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The HOW on postal correspondence discovered regular packets from Paris addressed to ‘Kenneth Milton' (a cover name for Ewer) containing ‘copies of despatches and telegrams from French ministers in various foreign capitals to the Quai D'Orsay [and] reports on the French political and financial situation'.
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MI5 discovered the provenance of the packets when one of the reports sent to ‘Milton' from Paris appeared almost verbatim in the
Daily Herald
on 8 May 1925 in an article by its Paris correspondent, George Slocombe, who was also manager of the FPA Paris office.
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The incomplete evidence which survives suggests that from 1925 to 1927 MI5 and SIS collaborated in operations against Ewer and his network, with MI5 in charge of letter and telephone checks, as well as some physical surveillance in London, and SIS watching their movements abroad. Sinclair later reported that the operations conclusively established ‘that the group, of which the head and financial controller was undoubtedly Ewer, were conducting Secret Service activities on behalf of, and with money supplied by, the Soviet Government and the Communist Party of Great Britain . . .'
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Intercepted correspondence revealed that Ewer was paying Slocombe about $1,000 per month to pay his informants – a clear indication of the importance attached to his intelligence. (Moscow's annual secret subsidy to the CPGB was $20,000.)
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Slocombe's correspondence also showed that he was in contact with a Paris address identified by the Sûreté, the French national police, as used by Soviet intelligence.
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At the insistence of Sinclair, MI5 agreed not to reveal the operation to the Special Branch
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– despite the fact that the activities of Ewer and the London office of the FPA were of obvious interest to it. That decision, though of dubious propriety, turned out to be a fortunate one since the investigation eventually revealed that the Special Branch was Ewer's most successful penetration.

MI5 and SIS operations against the Ewer network were disrupted during 1927 by what became known as the ARCOS raid. On 31 March Sinclair passed to Kell information from a disaffected former ARCOS employee that the front organization had photocopied a classified Signals Training manual from the Aldershot military base. Probably with the example of the Zinoviev letter still fresh in their minds, Kell and Harker spent the next six months checking the reliability of SIS's information, conducting inquiries at Aldershot and interviewing both the disaffected ARCOS employee and another SIS source in ARCOS, who was described by Morton as ‘a British subject of undoubted loyalty'. Once convinced that ARCOS had indeed copied the classified manual, they drew up a report on the case for the Director of Public Prosecutions. At 11 a.m. on 11 May the DPP confirmed to Kell that the possession by ARCOS of the Signals Training document was an offence under the Official Secrets Act. Kell's subsequent difficulties in gaining approval for a raid on ARCOS premises shows how much less well connected he was in Whitehall than Sinclair: during the remainder of the morning of 11 May Kell tried and failed to secure appointments with, successively, the PUS at the Home Office, the Directors of Military Operations and of Military Intelligence and the Chief of the Imperial General Staff.
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On his way back to the office from lunch, however, Kell had a chance encounter with the Secretary of State for War, Sir Laming Worthington-Evans, who agreed to see him at 5.15 p.m. Worthington-Evans in turn referred Kell to the rabidly anti-Soviet Home Secretary, William Joynson-Hicks, who immediately took a note prepared by the Director to the Prime Minister, Stanley Baldwin. Baldwin gave his permission to raid ARCOS in order to procure evidence of a breach of the Official Secrets Act.
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The raid on ARCOS headquarters, which the body shared with the Soviet Trade Delegation, at 4.30 p.m. on 12 May was poorly prepared and badly co-ordinated. The uniformed police, Special Branch and intelligence officers who took part in the raid were uncertain of their respective roles, and no one seemed sure who was in charge. Neither the Signals Training manual nor any other major evidence of Soviet espionage was discovered.
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After the raid, the Soviet chargé d'affaires informed Moscow in a telegram decrypted by GC&CS that there had been no ‘very secret material at the Trade Delegation'. A month earlier, with the possibility of a police raid in mind (though he doubted that the Special Branch would enter the embassy itself) he had advised Moscow in another decrypted telegram ‘to suspend for a time the forwarding by post of documents of friends, “neighbours” [probably a reference to the CPGB and Soviet intelligence officers] and so
forth from London to Moscow and vice versa'.
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A later MI5 report concluded that the ARCOS raid had disrupted existing Soviet espionage operations in Britain.
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The government response to the outcome of the raid, however, was to cause even more serious disruption to British intelligence collection.

The Baldwin cabinet found itself in a quandary when it met to discuss Anglo-Soviet relations on 23 May. Under pressure from a vociferous backbench Conservative campaign against Soviet subversion, strongly supported by Churchill and some other ministers, the government had already decided to break off diplomatic relations with Moscow and had hoped to use documents seized in the ARCOS raid to justify its decision. A cabinet committee concluded, however, that the ARCOS haul did not even prove ‘the complicity of the Soviet Diplomatic Mission' in the ‘propagandist activities' of the Trade Delegation. Still lacking usable evidence of espionage, the cabinet concluded that it must at least give public proof that the Soviet legation had breached the normal rules of diplomatic behaviour. The only proof available was the telegrams exchanged between the legation and Moscow decrypted by GC&CS. These were, as the cabinet minutes euphemistically observed, ‘secret documents of a class which it is not usual to quote in published documents'.
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To make its charges against the Russian legation stick, the cabinet decided to follow the undiplomatic example of Lord Curzon's outraged protest to Moscow in 1923 (the ‘Curzon ultimatum') and quote intercepted Soviet telegrams. The first public reference to the intercepts was made by the Prime Minister on 24 May in a Commons statement on the ARCOS raid. Baldwin read out four Russian telegrams which had, he drily observed, ‘come into the possession of His Majesty's Government'. An Opposition MP challenged Baldwin to say how the government had obtained the telegrams, but there was uproar (or, as Hansard put it, ‘interruption') before he could finish his question. The Speaker intervened and deferred further discussion until the debate two days later on the decision to end diplomatic relations with the Soviet Union.
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The debate, on 26 May, developed into an orgy of governmental indiscretion about secret intelligence for which there is no parallel in modern parliamentary history. Both the Foreign Secretary, Austen Chamberlain, and the Home Secretary, Joynson-Hicks (‘Jix'), followed Baldwin's bad example by quoting intercepted Russian telegrams. Chamberlain also quoted intercepted Comintern communications in an attempt to show that ‘the Zinoviev letter was not the only or the last' such document. Jix became quite carried away while accusing the Soviet Trade Delegation of running
‘one of the most complete and one of the most nefarious spy systems that it has ever been my lot to meet'. ‘I happen to have in my possession', he boasted, ‘not merely the names but the addresses of most of those spies.'
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On the day of the debate Chamberlain informed the Russian chargé d'affaires of the decision to break off diplomatic relations because of Moscow's ‘anti-British espionage and propaganda'. The Foreign Secretary gave his message an unusually personal point by quoting an intercepted telegram to Moscow on 1 April from the chargéd'affaires himself ‘in which you request material to enable you to support a political campaign against His Majesty's Government'.
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Baldwin's government was able to prove its charge of Soviet dabbling in British politics. But the documents seized in the ARCOS raid and the intercepted telegrams published in a government White Paper contained only a few cryptic allusions to espionage.
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The government contrived in the end to have the worst of both worlds. It failed to produce public evidence to support Jix's dramatic charges of ‘one of the most nefarious spy systems that it has ever been my lot to meet', yet at the same time compromised its most valuable Soviet intelligence source. Moscow responded to the publication of the intercepts by adopting the virtually unbreakable ‘one-time pad'
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for diplomatic and intelligence traffic. Between 1927 and the end of the Second World War GC&CS was able to decrypt almost no high-grade Soviet communications (though it had some success with Comintern messages).
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Alastair Denniston, the operational head of GC&CS, wrote bitterly that Baldwin's government had ‘found it necessary to compromise our work beyond question'.
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Following the ARCOS raid in May 1927, MI5 noted that Ewer's intelligence activities were winding down. A year later Harker, the head of B Branch, concluded that ‘the organisation known as the FPA has now definitely broken up'. Intelligence on one of its members, Albert Allen, suggested that he ‘may have quarrelled with his former employers, a fact which might be disclosed from his correspondence, and should this be discovered, it is obvious that we might be able, by careful approach, to get valuable information from him'. Allen, whose real name was Arthur Lakey, was a former Special Branch sergeant who had been dismissed after the police strike of 1919. On 25 June 1928 he was approached by John Ottaway of the Observation section who introduced himself as ‘G. Stewart of the Anti-Communist Union' and claimed that the Union had sent him to ask Allen about his involvement with the FPA. Allen agreed to provide
information on the FPA, ARCOS and other Russian ‘intrigues'. Ottaway reported after the meeting that, as Harker had suspected, Allen's ‘late masters evidently have let him down, and he seems embittered in consequence.' As evidence of the importance of the information he could provide, he revealed that he knew of leaks from both the Foreign Office and the Special Branch.
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In July 1928 Harker decided to meet Allen himself, introducing himself as someone who ‘came from Colonel Kell':

I very quickly found . . . that we were on quite good terms, and, by treating him rather as my opposite number, found that he was quite ready to talk up to a point. He is, I think, a man who is extraordinarily pleased with himself, and considers work which he did for some eight years for the Underground Organisation known as the FPA was admirably carried out, and has not received quite that recognition from its paymasters that Allen considers it deserves.

When Allen proved reluctant to identify his former boss, claiming to have been ‘very fond of him', Harker wrote the initials ‘W.N.E.' (William Norman Ewer) on a piece of paper, and asked Allen, ‘That was your late boss, wasn't he?' Allen replied, ‘Yes, “Trilby”, “Trilby” is a good fellow and damned smart.'
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‘Trilby', as Harker knew, was Ewer's nickname, acquired because of his youthful habit of going barefoot, like the heroine of George du Maurier's popular late-Victorian novel
Trilby.
Eventually Harker talked Allen down to a payment of £75 per meeting, and the information began to flow. Allen revealed that Ewer was paying £20 a week to sources in Scotland Yard for ‘inside information' which included the names of those individuals placed under surveillance or who were to be questioned on arrival at British ports – intelligence of great importance to the running of Soviet agent operations:

Ewer was in the habit of dictating every week or ten days a list of addresses on which it was known that H.O.W.s had been taken out. These lists were typed in triplicate, one copy was sent to Chesham House [the Soviet legation], one copy was submitted through Chesham House direct to Moscow, and the third copy was sent to some individual in the C.P.G.B.

According to Allen, ‘Any move that S[cotland] Y[ard] was about to make against the Communist Party or any of its personnel was nearly always known well in advance to Ewer who actually warned the persons concerned of proposed activities of the Police.' The Party and the Soviet legation were caught off guard by the ARCOS raid only because on this occasion security was so tight that the police officers in charge were initially told they were
raiding government dockyards. Harker asked Allen why, despite his inside information, he was unaware that MI5 had obtained HOWs on both him and Ewer. Allen replied – correctly – that MI5 had obviously not told Scotland Yard.
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Shadowing other members of Ewer's network led Ottaway's Observation team to Walter Dale, who had first been observed (though his identity was then unknown) keeping under surveillance the rendezvous originally chosen for the first meeting between ‘D' and Ewer. Dale in turn unwittingly led investigators to his main contacts in the Special Branch, the Dutch-born Inspector Hubertus van Ginhoven and Sergeant Charles Jane. After Dale's arrest, the discovery of his diary revealed further details of the operation of Ewer's network. It confirmed that Allen had operated for some time as the ‘cut-out' between Ewer and the Special Branch officers.
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The diary also gave details of Dale's other duties, among them the observation of British intelligence officers; surveillance of expatriate Russians; provision of lists of prominent individuals of possible interest to the Russians; and counter-surveillance for Russian agents, including Ewer and FPA employees. For the five years covered by the diary Dale and others maintained ‘unremitting surveillance' on the locations and some employees of British intelligence agencies, including SIS and GC&CS, which included noting officers' licence-plate numbers and trailing them to their homes. Allen's information and Dale's diary led MI5 to conclude: