Peter Wilson, Europe correspondent | October 08, 2009
Article from: The Australian
THE secret archives of MI5 have thrown new light on the founding of Australia's intelligence agencies, revealing the details of a 1948 meeting in Canberra where the sharp mind and prickly personality of Bert "Doc" Evatt forced a crucial change of strategy by London's spymasters.
Two of the British intelligence agency's top officers had travelled to Canberra with the intention of telling prime minister Ben Chifley and Evatt, his minister for external affairs, that Australia had to improve its security drastically because members of the Australian public service had begun leaking information to the Soviet Union.
Christopher Andrew, the first outsider to be given almost complete access to MI5's enormous archives, says the British officers arrived expecting a degree of deference from the Australians and had no intention of telling them the truth about how they knew the Australian public service was leaking.
"What they did not expect was to run into somebody like Evatt, who questioned them forensically and just tore their cover story to shreds," says Andrew, a Cambridge professor of history who is recognised as the leading expert on British intelligence.
Andrew had access to more than 400,000 MI5 files while writing The Defence of the Realm: The Authorised History of MI5, which was published by Penguin this week, but says: "I did not come across any other example in the history of MI5 when its representatives were so clearly out-argued by somebody.
"They didn't like Evatt at all but they admitted to their own superiors that he had been too smart for them."
The result, Andrew tells The Australian, was that the British had to share much more information with the Australians than they had planned, even briefing Chifley about US-sourced intelligence that remarkably had been withheld from president Harry Truman and the CIA by US military intelligence officers.
That was a turning point in MI5's initially strained relations with the Australians over intelligence issues, helping to build what Andrew calls "one of just two special relationships on intelligence that Britain has in the world, and the other of course is with the United States".
David Horner of the Australian National University, who has been commissioned to write a similar official history of ASIO, says historians knew about the visit to Canberra by the two MI5 men but Evatt's crucial role in the meetings has not been disclosed until now.
Drawing on internal records, messages and diaries, Andrew sets out the events that flowed from the discovery by US military intelligence analysts that Soviet embassies in Canberra and the US had been reusing code pads that were meant to be used only once, making it possible to break the codes.
The resulting cable interceptions, codenamed Venona, were an enormous breakthrough because after being flooded with information during World War II, Western intelligence agencies had found themselves under-resourced for the Cold War as they had few agents in the Soviet Union and had been unable to break Soviet codes.
"These cables were by far the most important intelligence information in the world," Andrew says.
Because of FBI director J. Edgar Hoover's belief that the CIA had been penetrated by Soviet agents, US officials took the extraordinary step of withholding the information about Venona from Truman, who Hoover thought would tell the CIA.
But much of the information was shared with MI5, which informed prime minister Clement Attlee.
In November 1947, the Americans told MI5 that one intercepted Soviet telegram "had revealed a serious leak of British classified information, probably from the Australian department of external affairs".
Attlee sent the director general of MI5, Percy Sillitoe, and Roger Hollis, a future head of the service, to Australia to brief Chifley about the leaks in Canberra and to discuss ways to improve Australian security, but not to tell him about the Soviet decryptions that had revealed the leaks.
On January 21, 1948, Attlee wrote to Chifley saying: "Sir Percy Sillitoe, who has my complete confidence, will explain orally a mostserious matter I should like you to consider personally."
Chifley was not greatly impressed. He telephoned Frederick Shedden, secretary of the defence department. During a visit to London 18 months later, Shedden recounted Chifley's comments to MI5 officer Guy Liddell, who recorded it in a diary entry that Andrew found in the archives.
"There is a fellow here with a bloody silly name - Sillitoe," Chifley had said. "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."
To conceal the source of the Venona information, MI5 officers devised a cover story, claiming that the evidence of a high-level penetration of Australia had been gleaned in interviews with a Soviet defector.
When the MI5 men met Chifley, Evatt, Shedden and defence minister John Dedman, it was the abrasive Evatt who poked holes in the cover story.
According to a report to London by Hollis, Evatt argued that a single human source such as that could not prove the leak came from Australia, because the Soviets could have tried to cover up a leak in some other country by telling some of its own people that the leak had come from Australia.
"If the defector has accepted in good faith the attribution of the leak to Australia, no amount of examination by the UK authorities could go further than establish that the defector genuinely believed what he had been told," Evatt had reasoned.
"The point made by Dr Evatt was in fact unanswerable on the basis of the cover story," Hollis reported back to London.
"There was a very considerable risk that DrEvatt and his colleagues would regard us either as fools for failing to see his point, or as knaves for knowing a great deal more than we were prepared to tell them, and it is by no means certain that they do not have suspicions in regard to the latter alternative."
Hollis believed Chifley and his ministers were lethargic about the need to improve their security, largely because of the misplaced confidence of Longfield Lloyd, the head of Australia's post-war security service, the Commonwealth Investigation Service. Lloyd believed he knew all about Soviet espionage, Hollis wrote, when "in fact he demonstrably knows nothing of these matters and has almost no resources to cope with them".
"I think we must assume that the ostrich-like attitude towards security of Evatt and the PM probably comes in part from such assurances from Lloyd.
"I am quite convinced that the CIS with its existing staff, and Lloyd at its head, has no possibility of ever becoming an effective counter-espionage service."
After Evatt's grilling of the MI5 men, they decided that the only way to convince the Australians was to reveal the true source of their information, but first Attlee sent Sillitoe to Washington to get American permission.
US secretary of state George Marshall agreed that Chifley, Evatt and Dedman could be told about Venona, even though that information was still being withheld from his own president.
By the time Hollis returned to Australia in August 1948, American alarm about the state of security in Australia had led them to stop sharing classified information with Canberra.
When Hollis told Chifley and Dedman about the true source of the Venona information, and therefore its veracity, they dropped their earlier objections to reforming CIS. They decided to establish the Australian Security Intelligence Organisation, and Hollis would later play a leading role in its formation.
Evatt was away during Hollis's second visit and there is no record that he was ever briefed on Venona.
"All the material I found shows that the British and the Americans did not like Evatt at all," Andrew says. "And quite a few Australians seemed to share that opinion."
Liddell's diaries in the MI5 archives contain the following entry after he had been visited in London in 1949 by Shedden, the head of Evatt's department: "There is clearly no lovelost between Shedden and Evatt. Shedden fully realises how much harm Evatt'spose as a mediator between East and West had done to Australian relations with the United States."
But, says Andrew: "Nobody ever said Evatt was not smart. He was clearly smarter than the people sent out by MI5 and when they tried to pull the wool over his eyes, it backfired.
"It had not occurred to Truman, for instance, that whatever cover stories he was being given about the source of this material might not be true, but Evatt dismantled their arguments pretty quickly.
"In any case, all that security about not telling Truman and the CIA about Venona came unstuck because the Russians did find out about it."
One of the few British intelligence officers informed about Venona was the traitor Kim Philby. The US networks handling Venona were infiltrated by another Soviet agent, William Weisband, which Andrew says probably explains why the Soviets stopped reusing one-time pads in 1948.
"So Truman wasn't told that they had this material but Attlee was and Chifley was and even Joseph Stalin was.
"At one point in 1949, when the British sent Philby to America, he was told that he could discuss Venona with the FBI but not with the CIA. So he followed orders and didn't discuss it with the CIA but, unfortunately, he happened to be discussing it with the KGB."
The two Australian diplomats believed to be behind the original leaks from the external affairs department were communist sympathisers Ian Milner and Jim Hill. Although neither man was charged, let alone convicted, most (but not all) Australian historians believe they were guilty.
Hill was posted to the Australian high commission in London in early 1950 so that MI5 could keep him under surveillance, and shortly after his arrival he was confronted and questioned in his office by MI5's leading interrogator, Jim Skardon. Though plainly shocked, Hill protested his innocence.
Horner at ANU says it's known that Hill that evening consulted some friends who were ideological comrades and Milner promptly fled to Prague, where he spent the rest of hislife.
But Andrew has found another new detail in the MI5 archives about Hill's behaviour that day. "There is no doubt in our minds that Hill is a guilty party," the MI5 agent Liddell wrote. "He telephoned his wife from a callbox immediately after the first interview but said no more than that something extremely serious had happened in regard to something that he had done."
Hill returned to Australia and resigned from the department within a year.
as posted here
