Churchill's Spy Files

by Nigel West

  Koessler, who professed to be Roman Catholic and anti-Semitic, had a son and daughter in England, both naturalised citizens, one of whom had tried to join the RAF, the other having married a German Jewish refugee and become a nurse. MI5’s Christopher Harmer had interviewed MULLET upon his arrival in January 1942 and taken a favourable view of the opportunity presented, even if he had some doubts about Koessler’s bona fides. Section V’s study of the ISOS traffic revealed that Koessler’s commercial enterprise was known to the Brussels Abwehr, and its sponsoring stelle in Cologne, as the KOLBERG organisation, but was constantly the subject of a jealous interest from the Madrid KO and the local Abwehr staff in Lisbon.

  In August 1942 MULLET returned to Lisbon, ostensibly to negotiate a manufacturing licence from Koessler for one of his products, fatless soap, and spent two weeks with him. In reality it was arranged that Koessler would act as an intermediary, passing Fanto’s reports, written in secret writing on his impregnated business letterheading, to the Abwehr. Upon his return to London, MULLET submitted a detailed report of his visit:

  The German Intelligence Service had four different categories of agents, of which the highest category worked direct to Canaris. He said, that since Mullet’s last visit to Lisbon he had become an agent of the German Intelligence and that he was in the highest category and that he was using his cover as an agent to develop his business activities and also to try in his own way to bring the war to an end as quickly as possible. Since he was a first-class agent, his authority depended exclusively on Berlin and that nobody in the Legation in Lisbon had any sort of control over him, but they were at his disposal to help him, and that the Commercial Attaché was his link for using the diplomatic bag for his reports and correspondence.

  In December 1942 SIS thought the situation sufficiently promising to send Frank Foley, C’s representative on the XX Committee, to fly out to Lisbon and assess Koessler. His report, partially redacted, was enthusiastic:

  The impression or assumption that HAMLET represented a Peace Party or group of German and others who were weakening in their determination to continue the war and were thinking of sounding us about a compromise on an anti-Nazi basis, is wrong.

  2. HAMLET asserted, and his statements were confirmed independently by PUPPET, that General von Falkenhausen and many officers on the Governor’s staff and in the armed forces of the Reich, are convinced that Germany lost this war when she failed to invade England: but these men did not send HAMLET to Lisbon to negotiate.

  3. The truth is that he is not in direct touch with General von Falkenhausen or Colonel von Harbou. The General is most exclusive and does not receive a Jew. He does not automatically receive even German officers. Until fairly recently the General and his entourage openly criticised the Party and the Führer’s conduct of operations. The dismissal of high officers in the Reich and the appointment of a Nazi official to the Governor’s staff had a sudden sobering effect. They have harnessed their tongues. I think it can be assumed that officers and politicians throughout the Reich have also become more discreet and that if there is any inclination in the army to plot against Hitler, it will be done without running lines to anyone outside, unless they are very sure in advance of the contacts that are to be met. They will not send a man out on to neutral highways to look for them.

  4. HAMLET is the representative of the Abwehrstelle at Brussels and in particular Major Bergman alias Berkhaus who works under Oberst Servase, the Abwehr chief in the rue Royale. The office is labeled: Ausbildungsstab D. Bergman the Chief of I-H. HAMLET came to Lisbon to establish under genuine business cover, the ‘organisation HAMLET’ espionage service directed against England and the Western Hemisphere. He works independently of Lisbon and in direct touch with Brussels through the diplomatic bag. The Commercial Secretary is the intermediary.

  It interested me to know whether Bergman had approached HAMLET or HAMLET Bergman, and in either case what had determined Bergman to back HAMLET, to trust him and to press for permission to employ him in spite of the prohibition against the ban on Jews without the explicit sanction of Himmler. HAMLET is not a small agent controlled by an immediate chief but the controlling person in an organisation outside Germany. Both questions are closely connected with the personalities of the two men.

  5. HAMLET is a typical example of the extremely clever and well educated merchant banker who flourished in Central Europe and who made large fortunes at home and larger ones when they emigrated to Western Europe and the Western Hemisphere. They had great contempt for the brains of the aristocratic officer class. He studied law; so did his father, grandfather and great grandfather. He is proud that four generations of HAMLETs have been doctors of law. He has always been rich. The Nazis broke him and dispersed his family. He went to Brussels, the Nazis caught up. He has, according to his statement, been in prison twice, but not in a concentration camp. He was an officer in the air arm of the Austrian Army in the last war. He was Austrian Intelligence officer at Trieste for six months. In Brussels he was trapped again. HAMLET developed an all absolving desire to revenge himself, or as he understated it, to settle his account with the Nazis.

  6. He found that Major Bergman who was a businessman serving during the war in intelligence, was in Brussels. Bergman had been wealthy but had lost money on horses, used the old technique and gave him shares in his companies. When the partnership was well established, HAMLET suggested that he should be given facilities to go to Lisbon to establish an organisation for Bergman. Bergman fell into the trap. It was fairly easy to obtain permission and ample funds as Berlin was dissatisfied with Lisbon’s work and the Germans wanted to establish a line through Lisbon under Portuguese commercial cover in case diplomatic cover became unworkable for war reasons. I need not point out the advantages of the arrangement both to HAMLET and to Bergman who is interested too in the Portuguese company, an investment which is attractive to a German who had experienced German inflation after the last war, and who sees no hope of Gemany winning this one.

  7. HAMLET’s plan of attack and revenge was based on his knowledge of the state of the German military mind which thought defeat inevitable. He would further depress their minds and weaken their fighting spirit by emphasising to them the actual and potential strength of the allied nations. He felt he was clever enough to serve up acceptable reports received theoretically, from agents, but in fact gathered from open sources such as newspapers etc. It must not be forgotten that he has the greatest contempt for their intelligence.

  8. It is known from the file how he met MULLET. He did not hide his true sentiments. He has not tried to run an objective service. He has passed to Brussels everything we have supplied. He has asked me to use him for strategical deception to hasten the end. That is a new development.

  9. Now PUPPET, an Austro-German [XXX] comes into the picture. He is the son of [XXX]. From our point of view the important fact is that PUPPET was a school and art friend of General von Falkenhausen.

  10. [XXX]

  11. He met HAMLET in the business field and thought he could obtain supplies of oil for PUPPET from Portugal. When HAMLET heard of the father’s friendship with von Falkenhausen he naturally suggested to him to obtain a letter of introduction. He did so but PUPPET’s father died before the letter of introduction was presented. General von Falkenhausen liked the pleasant young man and he became a poker friend – a small and exclusive circle.

  12. HAMLET’s next step was to take PUPPET into his confidence as he found they had common ideals. With PUPPET’s knowledge HAMLET persuaded Major Bergman to send PUPPET to Lisbon as the 100% reliable Aryan to make certain that he HAMLET played straight it would obviously strengthen his position enormously in the eyes of the Abwehrstelle. PUPPET is due to be called up for service. He says he will desert and risk being interned in Portugal.

  13. HAMLET had suggested to Major Bergman that he thought he could obtain a visa for a visit to the UK. I did not agree that it would be a practical proposition. He did not press the matter. He want
ed to obtain from us more support for his plan under cover of spying for the Germans.

  14. I did not feel that HAMLET would be of much use if he confined his work in Lisbon to serving up to the Germans open information obtained locally as information emanating from secret sources. I told him that his work would have little effect on the conduct of the war and he would inevitably be found wanting. I said I thought he should, if he really wished to destroy the Nazis, consider whether their destruction could be effected unless the German Army were defeated in the field. When he accepted that proposition I approached the question of his running an active espionage service for us under his Abwehr cover. I argued that knowledge of the enemy was an essential preliminary to his defeat. He was in a position to double the power of the instrument of revenge he had forged. I am inclined to distrust a man who lightly accepts a request to do espionage work. I was pleased HAMLET hesitated. I closed a very long session.

  15. My next meeting was with PUPPET. I repeated my arguments to him. I suggested he should return to Brussels and become the spearhead of HAMLET’s espionage service, and his courier. It would have been an ideal arrangement as it gave perfect cover and excellent contacts and potential sources of information. He informed me that if he returned to Brussels he would be called to the colours. The Abwehr would not be able to secure his release.

  16. As an alternative, I thought it wise to build up HAMLET’s organisation by making the Germans think that he had succeeded in placing a first class agent in England. The more they valued his work the easier it would be for him to double back on them in our interest and PUPPET thought they could invent a plan which the Germans would swallow, provided the Ministry approved in principle of PUPPET’s coming here. This has now been done.

  17. This is only a summary of the very long conversations which took place. I cannot say how successful Koessler will be in giving us information, but I am convinced of his good faith. In any case, I have a great hold on him as I am in possession of the original letters from Bergman to him and of copies of his replies. There are his children too, of course.

  18. Most secret sources make it certain that both have told us the truth.

  19. This is the ideal type of doublecross agent as it avoids the flaw in the French system when the agent was allowed access to both countries. HAMLET can only give the Germans what we give him through PUPPET. Revenge is the best motive.

  20. The Germans will pay for the whole service.

  Koessler eventually established two notional agents, Alois Falk, code-named ALOIS, and Georg Budniewicz, code-named BUDNY, who were supposedly attached to the Polish forces in eastern England. Later, this network would expand to include a further four non-existent agents deployed in the United States and Canada. His commercial mission, to negotiate with the Ministry of Supply, was actually cover for his espionage role, as already disclosed by Thornton and, after some hesitation and debate regarding some ambiguous ISOS messages, he was enrolled as a double-agent. Koessler’s 36-year-old assistant Hans Fanto was an Austrian aristocrat whose father had been a student with the German military governor of Belgium, General Alexander von Falkenhausen. It was an entrée that had been exploited by Fanto, who was a regular attendee of his poker parties held in his quarters at the Plaza Hotel and the Château de Seneffe.

  According to Koessler, his organisation received nearly a hundred messages from London written in secret writing by Fanto, who mailed them to his secretary, Ida Spitz, at her home address in Lisbon at 13 rua Basilio Teres 20. Madame Spitz was described by MULLET as an anti-Nazi Viennese Jewess whose son was in the Australian Army. Koessler then employed a retired Portuguese International Police officer, formerly the chief in Caldas da Rainha, named Aguiar as a courier to deliver them either to a café in Madrid or to the Spanish frontier. There they were received by an Abwehr officer, Werner Unversagt, who in August 1945 would be interrogated at Camp 020.2

  In July 1943 SIS’s Frank Foley travelled to Portugal to see Koessler at his villa in Estoril and, having met him half a dozen times, was persuaded of his authenticity and suitability as a double-agent, although MI5 expressed some misgivings about the lack of control exercised over Koessler’s activities and the security of his contact with the SIS station in Lisbon.

  In the months that followed HAMLET’s status grew as PUPPET in London supplied him with increasingly valuable information, including advance warning of Operaton HUSKY, the Allied invasion of Sicily in August 1943. Berlin was so impressed by Fanto’s accuracy, even if it had been received too late to act upon, that steps were taken to improve the Abwehr’s link with Koessler. This reaction, of course, was monitored through MI5’s study of ISOS. However, MI5 expressed concern about the uncontrolled nature of HAMLET’s reports to Brussels, which could not be checked through ISOS, and the fact that PUPPET had not received any funds since Foley had delivered him $1,000 from Koessler. Another anxiety was that Koessler had insisted that his commercial activities meant his network was self-financing, whereas ISOS revealed that he had received payments from the Abwehr that he had not passed on to Fanto, who had been promised £100 a month. These and other events developed into a crisis in October 1943 when John Marriott conducted a review of the case and came to some scathing conclusions:

  This case is regarded by you [Marriott’s MI5 superior T.A. Robertson] with a good deal of uneasiness, as is evidenced by the note which you yourself wrote not long ago. As I share your feelings about it, I have conducted as careful an investigation into its merits as its extremely complicated nature permits. Before stating my views I should say first that I have no criticism of the way in which it has been handled by the Case Officer who has obviously put an enormous amount of most careful work into it, and secondly that a really complete investigation would involve much more time than I have yet been able to give to it; merely to read every document on the files would, I think, take about a week without any outside interruptions, while a much longer period would be necessary before anybody starting from scratch could say that he had a really clear grasp of all the details. I am not at all sure incidentally that this fact alone is not the worst feature of the case, for its bulk and complexity add immeasurably to the normal obscurity which surrounds even a straightforward B1(a) case. It is, however, possible, and in my opinion reasonable, to decide this case’s merits without going into all its ramifications, and indeed my considered view is that it is only by disregarding most of the papers and by applying first principles that we are ever likely to arrive at a correct estimate of its value.

  In my submission before we decide to continue this case we must be able to give a satisfactory answer to two questions, namely:-

  What are HAMLET’s motives and objectives? What are our objectives?

  So far as (a) is concerned it seems to be assumed, mainly on the authority of Major Foley, that HAMLET is a man who genuinely desires the overthrow of the present German Government, and that he wishes this to be secured by a military victory on the part of the Allies. So convinced is Foley that this is a correct interpretation of HAMLET’s outlook that we are, in his opinion, safe in trusting him completely. With regard to (b), I am not at all clear that this question has ever been answered, except to the extent that it has been decided, and rightly in my view, that we cannot as matters stand use the case for military deception. I suspect, however, that in the back of the minds of some people there is an idea that in spite of HAMLET’s own later assertions to the contrary, and in spite of what I regard as the inherent improbability of HAMLET being in any such position, he may somehow or other be used either as a channel for obtaining some sort of peace approach or as a lever for widening breaches between the Nazi Party and the Army. Neither objective is a matter for M15 and if either is proposed to be pursued then I think we should first obtain a pretty clear instruction from the Foreign Office or PWE to proceed on their behalf accordingly. Alternatively we may be hoping that by maintaining HAMLET in position we shall in effect be able to use him as a straight agent. The position is,
therefore, that we have answered one question and have partially answered the other. How far are our answers correct and satisfactory?

  In the case of (a) we are dealing with what is admittedly only a matter of opinion and, with respect, only Major Foley’s opinion at that, but there are certain facts about HAMLET which cannot be ignored. These are:-

  (i) He is a traitor to his own country.

  (ii) He is a Continental-Jewish financier and big business man.

  (iii) He has a genuine financial interest in the Portuguese business which extends beyond the mere maintenance of cover for his espionage activities.

  (iv) He is completely and absolutely uncontrolled.

  It is of course by virtue of the last fact that HAMLET’s motives become a fundamental issue in the case. I recognise that Major Foley is the only officer who has had the advantage of meeting HAMLET in person, and I also recognise that Major Foley, by virtue of his long residence in Germany is entitled to be heard with great attention when he expresses an opinion about the character of a German.

  At the same time, however, I am not myself without experience of persons of HAMLET’s type, and since my experience has been gained in the way of a profession, which gives one a pretty clear insight into the way in which people behave, and which moreover brings one into a peculiarly close contact with the real character of persons, I venture to claim that in this particular case my opinion is just as good as that of Major Foley. I say, therefore, without any hesitation that I would in no circumstances whatsoever trust a man like HAMLET an inch further than I could see him, and only then if he was absolutely under my control and if I was satisfied his interest was identical with mine. I have too often in the past been led up the garden by gentry like HAMLET ever again to allow myself to be deceived by anything that they may say or do. It is furthermore, in my experience, a universal characteristic of such persons that they invariably so order their every act, even the most fundamentally dishonest, that they can be interpreted in more than one way. Thus, at the moment, although I am satisfied that HAMLET is, because he must be, playing a double game with us, I do not in the least expect that that fact would necessarily be apparent from his actions at this stage. He and his class are much too downy to give any specific indications of their dishonesty.