The Defence of the Realm (68 page)

Late in 1948 Sidney Stanley was the star witness at a tribunal set up to investigate allegations of corruption among members of the government and Whitehall officials. Presided over by Mr Justice Lynskey, the Tribunal heard sixty witnesses and a million words of evidence in an oak-panelled hall at Church House, Westminster. The sometimes exotic revelations of high-living and subterranean intrigue in an era of post-war austerity so captured the imagination of newspaper readers that they were dubbed ‘the great breakfast serial'. John Belcher, Parliamentary Secretary at the Board of Trade, who had received lavish hospitality and presents from Stanley, as well as seeing him or speaking to him on the phone at least once a day,
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announced his resignation even before the Tribunal concluded, on the grounds, said his Counsel, ‘that although he did not receive these bribes corruptly, nor did he allow them to influence him in any way in any decision he had to make, they are incompatible with his position as a Minister of the Crown'.
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Belcher acknowledged that he had ‘found Mr Stanley to be interesting, amusing, generous in his nature and in general a good companion'. Stanley's geniality and flamboyance during the Tribunal were almost as striking as the unreliability of his evidence. Under questioning by the Attorney General, Sir Hartley Shawcross, he replied at one point, ‘Do not try to trap me with the truth.' After Shawcross's final address to the Tribunal, Stanley told him, ‘That was a fine speech. Thank you, Sir Hartley. I have been a fool, I admit it.' ‘If you say so, Mr Stanley,' replied the Attorney General, ‘I am sure it must be true.' Stanley was equally
gracious to the Scotland Yard superintendent who had been in charge of investigating his affairs. ‘Thank you very much,' Stanley told him. ‘You have played the game.'
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Stanley's cheerfulness at the end of a tribunal which had exposed him as a fraud probably reflected his relief that he had not also been exposed as a member of the Irgun intelligence network in Britain. During the Tribunal hearings, the Chief of SIS, Sir Stewart Menzies, personally informed Sillitoe that he had ‘learned from a reliable informant' that Stanley was ‘part of a group of extreme Zionists intent on running arms to Palestine'.
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In the Commons debate on the findings of the Lynskey Tribunal on 3 February 1949, Attlee announced that the government had decided that it would be ‘conducive to the public good' for Stanley to be deported. What he did not reveal to the House was that the main threat which Stanley posed was far less the much reduced risk that he would corrupt people in public life than that he would assist Irgun.
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Kim Philby, like his masters in Soviet intelligence, secretly welcomed the terrorist campaign against the British mandate in Palestine as a blow to British imperialism in the Middle East inflicted by ‘progressive' Jews of Russian and Polish origin. According to a B3a report, the newly appointed secretary general of the United Zionist Revisionists, C. Ben Aron, told the UZR North-West London Area Council on 19 May 1947:

There is every hope that the Russians will succeed in helping the Jews against the British, by demanding the withdrawal of British troops from Palestine. The tasks of the Revisionists at present [are] to foster unrest and difficulties in Palestine, and to thus force Britain to give up the mandate.
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The arms supplied to the Zionists from Czechoslovakia with Moscow's blessing during the first Arab–Israeli War in 1948 (known to Israelis as the War of Independence and to Arabs as al-Nakbah, ‘the Disaster'), as well as Soviet diplomatic support, were of crucial importance to the birth of Israel. That same year the Soviet Union was the first to recognize the new state. Stalin, however, had miscalculated. The State of Israel rapidly built up a special relationship not with the Soviet Union but with the United States. Stalin spent the final years of his life consumed by anti-Semitic conspiracy theories.

Security Service concern at the threat of Zionist terrorism in Britain did not entirely disappear with the establishment of the State of Israel. Sillitoe informed SIME that during a discussion of terrorism in November 1949:

The [Service] Directors agreed that, on the basis of information at present available, there was still a need to study it. They decided that the focal point for such a study was to be this office. There is not much that we can do, but we are going to attempt to stimulate SIS to make enquiries in foreign countries, and we shall also have to look to you for any information which may come your way in the Middle East. Our main task will be to pass on to the Police any information we get about organisations or individuals who may make trouble in the UK.
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The loathing which Menachem Begin inspired within the Security Service was rekindled by the publication of an English translation of his memoirs in 1952. The outraged Director of the Overseas Division, Sir John Shaw, former Chief Secretary in Jerusalem, gave his verdict on the memoirs in a minute on Begin's file:

It is a revolting document which glories in the flogging of British officers, the hanging of British sergeants, &c. by Jewish terrorists during the latter days of the Mandate. I took legal opinion as to whether I should take proceedings for libel in connection with [Begin]'s account of the King David Hotel episode in 1946, but I was advised not to do so for technical reasons. The book had no sale or circulation in this country and it is not worth the notice of this Office now.
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No other officer of the Security Service is known to have contemplated a libel action against a Service target.

The one inexcusable aspect of the Security Service's post-war attitudes towards Zionism was its policy on the recruitment of Jews. During the war a small number of Jews had served with distinction in the Security Service – chief among them Victor Rothschild. Though MI5's own investigations had shown that mainstream British Jewish associations were wholly opposed to terrorism, the post-war Service refused to recruit Jews on the grounds that their dual loyalty to both Britain and Israel might create an unacceptable conflict of interest. In 1955 John Marriott, Director B (personnel), stated that ‘our policy is to avoid recruiting Jews if possible unless they have very strong qualifications which are necessary for our work.'
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He went on to tell a staff board that ‘as a matter of general policy Jews were not now recruited to the Service.'
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In 1956 a potential female recruit was rejected on the grounds that she was a practising Jew,
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but in 1960 a Jew who was a member of the Church of England was appointed as a transcriber.
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As late as 1974, when it was agreed that there was ‘no general bar on the recruitment of Jews of British nationality', there was still prejudice against particularly observant Jews and those of distinctively Jewish ‘physical appearance and demeanour'.
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The discrimination practised by the Security Service against potential Jewish recruits has, at least in the early Cold War, to be seen within the context of the low-level anti-Semitic prejudice which, even after Auschwitz, was still common in British public life. Attlee commented during a discussion on new ministerial appointments in 1951, ‘There were two who were always being recommended as knowing about industry – [Ian] Mikardo and [Austen] Albu – but they both belonged to the Chosen People, and he didn't think he wanted any more of
them
.'
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Neither, alas, did the Security Service.
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3

VENONA and the Special Relationships with the United States and Australia

The most important counter-espionage breakthrough of the early Cold War came from SIGINT. Whereas wartime ULTRA had been a primarily British success shared with the Americans, the first major SIGINT breakthrough of the Cold War was an American success shared with the British. The assistance which MI5 counter-espionage received from SIGINT thus derived from the peacetime continuation of the Special Relationship with the United States which had shortened the Second World War. As Roosevelt's vice president, Harry Truman had been kept in ignorance of the ULTRA secret. After succeeding Roosevelt in April 1945, however, he was so impressed by the insight which ULTRA gave him into the closing weeks of the war with Germany and the final months of the war against Japan that in September 1945 he secretly authorized the continuation of the SIGINT alliance with Britain. The details of peacetime SIGINT collaboration between the United States and the British Commonwealth were settled by a top-secret agreement concluded in London in March 1946 (later updated on a number of occasions).
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One of Petrie's few blind spots as DG was his failure, unlike Guy Liddell, to foresee the post-war importance of the Special Relationship, which Liddell was anxious to reinforce by personal contact. When Liddell sought the DG's approval for a liaison visit to America in February 1946, Petrie ‘was not supportive, thought others could do it . . . In the end he said that if I would pay half my passage he thought I could go.' Though Liddell decided to go on these humiliating terms, he told his diary:

I feel somewhat insulted by the whole incident. It just goes to show how much value is attached by the DG to one's efforts to try and build up a liaison with the Americans. I feel rather like a schoolboy who has been accused of wangling a day's holiday on the excuse that he is going to his aunt's funeral.
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Even Liddell can have had little idea how important intelligence from the United States was to be to British counter-espionage for the rest of his term
as DDG. The most important source was VENONA, the most closely guarded intelligence secret on both sides of the Atlantic during the early Cold War.

VENONA was the final codename
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given to almost 3,000 intercepted Soviet intelligence and other classified telegrams sent during the period 1940 to 1948, which used the same (theoretically unbreakable) one-time pads more than once and thus became vulnerable to cryptanalytic attack.
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Most were decrypted in the late 1940s and early 1950s, usually in part only, by a team led by a cryptanalyst of genius, Meredith Gardner, at the Army Security Agency (ASA) at Arlington Hall, Virginia, assisted from 1948 by GCHQ.
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The first approach to GCHQ from ASA came as the result of Gardner's discovery in 1947 that some of the telegrams between the Centre (Soviet intelligence headquarters) and its Canberra residency were still reusing one-time pads.
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Though GCHQ was not yet informed about the decrypted traffic between the Centre and its US residencies (probably because of its acute political sensitivities), in May 1947 it was invited to send a liaison officer to Washington to collaborate in the ASA attack on the Canberra traffic.
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As a later CIA study noted, ‘It speaks volumes about inter-allied signals co-operation that Arlington Hall's British liaison officers learned of the breakthrough even before the FBI were notified.'
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On 25 November Liddell was informed that the decrypt of a Soviet telegram ‘dated about 1945' had revealed a serious leak of British classified information, probably from the Australian Department of External Affairs.
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Even more remarkable was the fact that the CIA was not informed of the Soviet decrypts until five years later.
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Though the decrypts provided important information on Soviet espionage in regions of the world as far apart as Scandinavia and Australia, the most numerous and most important concerned intelligence operations in the United States. VENONA revealed that over 200 Americans were working as Soviet agents during and sometimes after the Second World War, and that the leadership of the American Communist Party was hand-in-glove with the KGB. The decrypts showed that every section of the wartime administration of Franklin D. Roosevelt had been penetrated by Soviet intelligence. The US Office of Strategic Services (OSS, forerunner of the CIA) was the most penetrated intelligence agency in American history. Thanks to Soviet agents in the top-secret laboratory at Los Alamos near Santa Fe, which designed and built the world's first atomic bomb, the first Soviet atomic bomb, successfully tested in 1949, was a copy of the American original tested at the Alamogordo test site more than four years earlier.
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VENONA was an even more closely guarded secret than ULTRA.
There had never been any question of withholding ULTRA from President Roosevelt. By contrast, for at least three years President Truman was not briefed on VENONA.
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Attlee, however, was. Late in 1947 he was personally informed by Sillitoe that VENONA decrypts revealed that Soviet intelligence had obtained top-secret British documents on post-war strategic planning from ‘friends' in the Australian Department of External Affairs. Attlee authorized the DG to visit Australia, accompanied by Roger Hollis (then B1), in order to brief the Australian Labor Prime Minister, J. B. ‘Ben' Chifley, and some of his senior officials about the leakage of classified information in Canberra (though not about the Soviet decrypts which had revealed it), and to discuss ways to improve Australian security.
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On 21 January 1948 Attlee wrote to Chifley: ‘Sir Percy Sillitoe, who has my complete confidence, will explain orally a most serious matter which I should like you to consider personally.'
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Chifley did not take to Sillitoe. He rang up Sir Frederick Shedden, the secretary of the Department of Defence, and told him: ‘There is a fellow here with a bloody silly name – Sillitoe. As far as I can make out he is the chief bloody spy – you had better have a look at him and find out what he wants.'
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In order to conceal the SIGINT source from Australian ministers and officials, Sillitoe and Hollis used a somewhat feeble cover story, claiming that the evidence of high-level penetration of Australia had been provided orally by a Soviet defector. At a meeting with Chifley, Dr H. V. ‘Bert' Evatt, Minister of External Affairs, John Dedman, Minister of Defence, and Shedden, the cover story quickly began to fall apart as it was skilfully probed by the abrasive Evatt. As Hollis ruefully acknowledged: