by Larry Loftis
The raid was worthy of emulation. On November 11, 1940, the Royal Air Force and Navy had made history, forever changing the future of war. Under cover of darkness, the RAF launched twenty-one aircraft from two carriers against the Taranto naval base. A surprise, preemptive strike from fifty miles out, it was the first aerial assault against a defended port. The aging and ugly Fairey Swordfish, a lumbering and virtually defenseless aircraft designated as a torpedo-spotter-reconnaissance seaplane, was tasked for the mission. Designed in the early 1930s, it was outdated by the time the war began. With box-kite wings and legs that resembled an oil rig, it bore the unbecoming nickname “Stringbag.”
Launched in two waves from the Illustrious and the Eagle, the Stringbags proved capable attack craft. The damage to the Taranto base was considerable, if not devastating. Three battleships were put out of action. The Littorio, Italy’s finest and less than three years old, was hit by three torpedoes and took months to repair. The Caio Diulio, which was a step above all British counterparts save one, had to be dry-docked for half a year. The Conti di Cavour, which carried catapult aircraft, was damaged beyond repair. Two other ships—cruiser Trento and destroyer Libeccio—had suffered direct hits but the bombs failed to explode. The Stringbags also demolished Taranto’s seaplane base and damaged its oil tanks. In the span of two hours, the raid had bloodied and significantly weakened the Italian Navy, securing for the British control of the Mediterranean.
What the Germans needed to know—and pass to the Japanese—was how the RAF did it. Taranto was heavily defended. Three walls of twenty-seven barrage balloons—a frightening array of lethal steel cables—hovered before the ships like a giant spiderweb. Under water, three rows of netting waited to snag torpedoes. Around the base a legion of anti-aircraft guns pointed to the sky. Enemy pilots attempting to drop a bomb or torpedo would have to run a gauntlet of twenty AA batteries.
The British did, and they did it at night.
Dusko asked the obvious: Why would the Japanese be interested in a British attack on an Italian naval base? Von Gronau, Johnny answered, thought the Japanese would enter the war and would do so by attacking the United States.
Taranto would provide the blueprint.
Days later, Dusko wrote, he visited von Karsthoff for details of the U.S. assignment. Ludovico gave him a questionnaire but directed Popov to peer inside a microscope on his desk. Dusko did, and he could see the first page of questions. Removing the slide, the major revealed a black dot, no larger than a period. The mikropunkt, von Karsthoff said, was what Dusko was examining. With this revolutionary element of spycraft, the Germans could take any document, reduce it in size by a factor of 450:1 to 750:1, and embed it in processed collodion* no larger than 0.1 mm in diameter.
British raid at Taranto, November 11, 1940.
While microphotography had been invented in 1853 by Englishman John Dancer, and patented in 1859 by Frenchman René Dagron, it would be decades before the invention offered espionage utility. Not until 1925, at the International Congress of Photography, would microdots* be revealed. At this Congress Dr. Emanual Goldberg, a Russian-born German from Dresden, introduced to the scientific world the technology of reducing photographic images to such size that a magnifying glass was required to observe details.
Amazingly, from 1925 to 1937, the only serious study of microdots occurred in Germany. Abwehr chief Admiral Canaris saw the invention as the perfect vehicle to send secret messages to agents abroad and encouraged further development. On November 18, 1937, he awarded a young Swiss optical engineer, Dr. Hans Ammann-Brass of the Askania-Werk Berlin manufacturing firm, a contract to develop a microdot system. One year later, on November 18, 1938, Ammann-Brass delivered the completed prototype.
While von Karsthoff told Dusko he was the first agent to use the secret method of communication, this was incorrect. Canaris had placed agents in Mexico and Brazil as early as mid-1939, and Albrecht Engels, whom Dusko would meet later in Rio, received and began using the microdot-producing apparatus in the fall of 1940. With his questionnaire embedded on microdots, however, Dusko would be the first to carry the technology to America.
Starting on the next page, translated from German, is Dusko’s 1941 questionnaire now held in the British Archives. The airfields listed under “Aerodromes” are Pearl Harbor air bases.
Due to secret classification by the U.S. and Britain, the public would not see this questionnaire until 1972, when J. C. Masterman included it as Appendix 2 (“Tricycle’s American Questionnaire”) in The Double-Cross System. The book, written in the summer of 1945 as a report for MI5, included only agent code names and had never been intended for publication. Some twenty-seven years after compilation, and over considerable consternation from the Security Service,* however, Masterman published the report with Yale University Press. In his discussion of the questionnaire, Masterman stated that he received it from MI6 on August 19, 1941 (nine days after Dusko’s departure for New York), and that it was translated and read to the Double-Cross Committee, copies being sent to appropriate service members.
Unknown to Dusko, the Germans already had a spy in Hawaii, a Dr. Kuehn. The Japanese had reported to the Germans, however, that the man was an amateur and that his information was useless. He was clumsy and a security risk, they said. As a result, Japanese Intelligence asked Goebbels to replace Kuehn, and Popov was given the nod.
Dusko’s Pearl Harbor Questionnaire in MI5 archives.
The National Archives of the UK
As von Karsthoff worked his way through the questions, Dusko noticed that the next section—“Hawaii”—asked about ammunition dumps and mine depots. Johnny’s investigation at Taranto came to mind and the picture was complete.
The Japanese were going to attack Pearl Harbor.
Another maelstrom, however, would hit home first. Twenty days after Ivo’s escape in early July, the Ustaše transferred the death sentence to his wife and child. Dragica was twenty-one and their child, Milorad (“Misha”), was three months old.
They were to be publicly hanged.
11
CASINO ESTORIL
By mid-summer Midas was in full swing. That the plan was complicated and involved unknown players may have contributed to its success. Guy Liddell’s July 16, 1941, diary entry reveals his confused understanding of the scheme:
The Twenty Committee have got a plan known as Midas. The idea is to get the Germans to send over a large sum of money which will be held here by some selected individual who will make the necessary payments to agents in the U.K. Tricycle has succeeded in getting the Germans to bite but they propose to send over their own representative who will effect the disbursements. He will get the money from our agent who will be reimbursed by the opening of a credit which Tricycle will take with him to America.
J. C. Masterman, having heard details during Double-Cross meetings, recorded a more lucid understanding:
In Lisbon Tricycle represented to the Germans that he knew a rich Jewish theatrical agent who was anxious to build up a reserve of dollars in America as he was afraid England might lose the war. The arrangement made, therefore, was that TRICYCLE should receive dollars in Lisbon or America from the Germans and that the Jew should pay over £20,000 in sterling to TRICYCLE’s nominee in England. The nominee was, of course, to be a person chosen by the Germans.
Major von Karsthoff wasted no time pursuing the opportunity. Soon after the agreement was in place, Ludovico summoned Dusko to the villa and introduced Lieutenant Colonel Martin Töppen, Abwehr financial supervisor, who had flown in specifically to arrange details. Berlin had approved the exchange, he said; Popov would cable the theatrical agent with the exchange terms and tell him to expect a German contact to come by his London office to pick up the sterling. Once the courier notified Berlin that he had retrieved the funds, the Abwehr would notify von Karsthoff of approval to disburse the exchange dollars to Dusko. Popov would then deposit the money
in the theatrical agent’s account in New York.
Agreeing to the deal, Töppen asked for the man’s name and address where his agent would collect the sterling and Dusko said his name was Erik Sand and gave the address. Töppen jotted it down and they were in business. Structured into the deal was a 5 percent commission for von Karsthoff. Unknown to the Germans, MI5 had incentivized Popov with a 10 percent commission.
No sooner than he had left, however, Dusko realized he had made a terrible mistake. The theatrical agent’s name was Eric Glass, but he had mistakenly told Töppen the name was Erik Sand, sand being the main ingredient in glass. Dusko’s mind—mixing contacts, codes, and cocktails—was playing dangerous tricks on him. If the German agent arrived at the address looking for someone who didn’t exist, the scheme would collapse. When Dusko returned to England, MI5 had to implement immediate changes to Mr. Glass’s office: a new name plate, an MI5 receptionist, and instructions for Glass to become “Erik Sand” until further notice.
Sand and Glass. Dusko was juggling too many balls.
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In London, Mr. Glass assumed his new identity and welcomed a new receptionist, Miss Susan Barton (whose real name was Gisela Ashley). MI5’s plan was simple: If the Germans sent an unknown agent for the pickup, Scotland Yard could follow and later arrest him; if the Germans sent an agent the British were running, so much the better.
On July 31, 1941, Dusko sent the telegram to Mr. Sand, informing him of the exchange rate:
TILLY HAD YESTERDAY A DAUGHTER WEIGHING 3 KILOS PLEASE INFORM HARRY WHEN YOU MEET HIM = MARIA GONCALVES
According to the arranged code, the first letter of the new mother’s name (“T”) would correspond to the number of pounds to be disbursed, in thousands, per the place of that letter in the alphabet, or £20,000. As a double check, the infant would be a boy if the amount was up to £10,000, a girl if it was over. The weight of the child was to indicate the exchange rate according to a table, 3 kilos indicating an exchange of $2 per pound, or $40,000.
Dusko sent a second telegram to Berlin confirming the dispatch to Sand and saying that “HARRY should confirm” by cable that he had received the money so that dollars could be paid to Dusko before he left for America. To make sure that he received the funds from von Karsthoff, Dusko delayed his departure for New York until August 10.
To MI5’s pleasure the Abwehr contacted Wulf Schmidt, the turned German spy codenamed TATE, for the pickup. MI6, which had agreed to put up the initial £20,000, kept its money, but TATE notified Berlin that he had picked up the sterling. Detailing the charade, the Double-Cross Committee recorded the exact number and denomination of supposed pounds given to Schmidt—increments of £5, £10, £20, £50, and £100 notes. The Abwehr, thrilled that they had finally delivered money to Schmidt, told him to use all of it for operations.
Midas was golden, and over the next three years MI5 would launder some £85,000—almost the entire war budget for the Double-Cross Committee—through the Sandman.
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Several days later von Karsthoff received word from Berlin and disbursed the $40,000, minus Ludovico’s commission, to Popov. Thinking the bundle might draw too much attention in the Palácio safe, Dusko opted to keep it on him until he could deliver it to MI6 the next day. That evening—with the Midas money and another $30,000 or so he was carrying—he could paint the town twice over. Other eyes would watch to make sure he didn’t.
When Dusko exited the hotel lift, a British officer was secretly waiting.
It is unclear whether Popov knew Ian Fleming personally, but he knew of Fleming, knew that Ian was with Naval Intelligence, and Fleming knew of him. “I had in my possession eighty thousand dollars in cash,” Dusko later told an interviewer. “I was supposed to turn it over to British Intelligence. But I had the money on me for an entire evening which I spent in the Estoril Casino. . . . Fleming was detailed to keep an eye on me and the eighty thousand.”*
Telegram Dusko sent to Erik Sand on July 31, 1941.
The National Archives of the UK
Dusko’s assumption that Fleming got wind of the deal was logical. Since Fleming’s boss, Rear Admiral John Godfrey, sat on the W Board and the Double-Cross Committee, Fleming likely was well aware of Popov and Plan Midas. Godfrey had direct oversight of Dusko’s activities and, as a member of the committee, had to approve the financial scheme. What Popov didn’t know was that Fleming and Godfrey were returning from a visit to the U.S. The sequence of events is noteworthy.
In early May 1941 Godfrey and Fleming scheduled a trip to Washington to promote British-American intelligence collaboration, and to provide assistance with the development of the Office of Strategic Services (forerunner to the CIA) to be headed by William “Wild Bill” Donovan. In his foreword to H. Montgomery Hyde’s Room 3603, Ian Fleming refers to this all-important mission: “In 1941 . . . I was on a plainclothes mission to Washington with my chief, Rear-Admiral J. H. Godfrey.” Meeting J. Edgar Hoover, Fleming recalled that the FBI director “expressed himself firmly but politely as being uninterested in our mission.”
On their stopover in Lisbon, Fleming stayed at the Palácio, checking in on May 20. Traveling under a diplomatic passport, he told the registration clerk that his occupation was “government official.”
Ian Fleming’s Palácio registration, May 20, 1941.
Cascais Archive
According to Fleming’s biographer, John Pearson, Godfrey and Fleming visited the Casino Estoril on their second night in Lisbon, and it was here that Fleming cast a red herring about the inspiration for his famous casino scene in Casino Royale. In a Canadian Broadcasting Company interview shortly before his death, Fleming stated that he went to the casino to play Nazis, hoping to take their money. Fleming stated that he met and gambled with the enemy, but after three bets the Germans emptied his bankroll and his gaming night was over. Pearson explained Ian’s imagination:
Fleming himself has described how it all happened: how he got the idea of James Bond’s baccarat battle with LeChiffre from a game he himself played here in deadly earnest against a group of Nazis. . . . The reality seems to have been rather different. It was a decidedly dismal evening at the casino—only a handful of Portuguese were present, the stakes were low, the croupiers were bored. The Admiral was not impressed. Fleming, however, refused to submit to the depressing atmosphere. . . . The game progressed. Then Fleming whispered to Godfrey, “Just suppose those fellows were German agents—what a coup it would be if we cleaned them out entirely!” It was not a thought that particularly appealed to the Admiral—he found it impossible to translate those somber Portuguese in their dark suits into Nazi agents. But Fleming liked the idea and played a long, unsuccessful game until he was completely cleaned out. Next day he and the Admiral boarded the flying boat in the estuary of the Tagus and left for the United States.
Fleming didn’t garner a theatrical casino scene that night but he would have opportunity soon enough.
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Around May 23 Godfrey and Fleming took the Pan Am Clipper to New York. The trip was significant as British Intelligence deemed it vitally important that the U.S. have one intelligence security boss—Colonel William Donovan. Upon arrival, Admiral Godfrey met first with the U.S. Intelligence heads, and then on the evening of June 10 he met with FDR to urge the appointment. The President agreed that “Wild Bill” was the appropriate choice, and on June 18 Donovan assumed the innocuous title of Coordinator of Information.
According to letters from Ian Fleming to Colonel Rex Applegate and Cornelius Ryan, Fleming was instrumental in the transformation of Donovan’s COI to the OSS. In his letter to Applegate years after the war, Fleming wrote: “General Donovan was a close personal friend and . . . in 1941 I spent some time with him in his house in Washington writing the original charter of the OSS.” As thanks for his contribution, Donovan presented Fleming with a .38 Police Positive Colt revolver inscribed, “For Spec
ial Services.”
David Eccles, advisor to the OSS as an officer with Britain’s Ministry of Economic Warfare, confirmed that Fleming stayed in Donovan’s house during this trip. In a letter to Roger Makins at the Foreign Office on June 24, Eccles wrote: “I enclose a memorandum on the new agency which the President is setting up to co-ordinate strategic information. You will see that Bill Donovan is the co-ordinator. . . . I have installed Ian Fleming in my bed at Bill’s house.”
While Fleming was busy with Admiral Godfrey in the U.S., Dusko returned to Lisbon. On June 29 he checked in at the Palácio, staying until August 10. Fleming’s schedule was almost identical. In mid-July, he completed his Washington duties and also returned, sending memo updates (from Lisbon) to Admiral Godfrey on July 18, July 30, August 1, August 10, and August 11. This time, however, he didn’t stay at the Palácio but with his friend, David Eccles. On July 29 Eccles wrote from Lisbon to his wife: “My darling love—Ian Fleming is here and I am trying to arrange that he should go to Tangier. He came straight from Washington.” Fleming left Lisbon for London on August 12, two days after Popov.
From mid-July to August 10, then, Popov and Fleming were together in Lisbon/Estoril. Following Popov’s hotel registration and the memos of Fleming, their encounter would have occurred during these three or four weeks.
From the hotel, Popov wrote, Fleming followed him to a local bar, a restaurant, and then to Casino Estoril. At the time, Dusko was unsure why Ian was shadowing him. Had Ian heard of the success of Plan Midas? Had Godfrey asked him to watch over after the cash? If so, perhaps Fleming was following, and in his mind protecting, a king’s ransom. His Majesty’s money, to be precise.
“The scent and smoke and sweat of a casino are nauseating at three in the morning,” Ian Fleming wrote for the opening line of Casino Royale. He was remembering Casino Estoril, which, unlike his prior visit, was bustling this night. Estoril’s casino was “grand,” one MI6 agent wrote, “with red velvet curtains and sparkling chandeliers everywhere.” It would provide a suitable backdrop for the drama that followed.
