Studies in Intelligence (1997)

44As the Soviets drew closerto Berlin, Gehlen dispersed

his staff and transferredthe FHO's intelligence files

to secret locations inBavaria. There, Gehlen

and his handpickedofficers waited to

surrender to Americanforces.

•

Kevin C. Ruffner, a member of the

History Staff, is on a rotationalassignment with the Counterintelli-

gence Center.

All statements of fact, opinion, or analysisexpressed In Studies In Intelligence are those ofthe authors. They do not necessarily reflectofficial positions or views of the CentralIntelligence Agency or any other US Governmententity, past or present. Nothing In the contentsshould be construed as asserting or implying USGovernment endorsement of an article's factualstatethents and Interpretations.

•

DECLASS IF IED AND RELEASED BY

CENTRAL I NTELL 'BENCE AGENCY

SOURCES METHODS EXEMPT I ON38211

NAZI WAR CR IMES DISCLOSURE ACT

DATE 2001 2006

Secret

A Controversial Liaison Relationship

American Intelligence and the GehlenOrganization, 1945-49- (S)Kevin C. Ruffner

The CIA's sponsorship of thenascent West German intelligenceservice in mid-1949 marked anexpansion into uncharted opera-tional waters. 1 This new directionirrevocably linked the CIA withformer members of the General Staffof the defeated Wehrrnacht and NaziGermany's intelligence services,some of whom had notorious war-time reputations. 2 The Agency madethis decision after a long-runningdebite with the US Army about thewisdom of supporting a resurrectedGerman General Staff and a quasi-independent national intelligenceorganization. (v)

The story behind CIA's involvementwith the Gehlen Organization actu-ally started during the ebbing hoursof World War II. With the Sovietsfighting in the streets of Berlin andthe British and Americans racingacross the shell of the Third Reich inthe spring of 1945, many Germanofficials realized the desperation oftheir cause. Reinhard Gehlen, theformer chief of the German Army'sintelligence branch dealing with theEastern Front and Soviet forces,planned to survive Hitler's Gotter-dammerung as the 1,000-year Reichcrumbled. Like most Germans,Gehlen preferred surrender to theWestern Allies as opposed to anuncertain fate at Russian hands. (U)

Born in 1902, Gehlen entered theReichswehr, the Weimar Republic'ssmall army, shortly after the end ofthe World War I. He advancedthrough the officer ranks and joinedthe General Staff as a captain in1936. During the invasion of Poland

three years later, he served as a staffofficer in an infantry division wherehis organizational planning and staffwork attracted the attention of seniorofficers. By mid-1942, Gehlen tookcharge of the German Army HighCommand's Fremde Heer Ost (FHOor Foreign Armies East), with theresponsibility of preparing intelli-gence on the Soviet Union. Gehlen'swork in this position eventuallyincurred the wrath of Hitler, whorejected Gehlen's pessimistic reportsabout the strength and capabilities ofthe Soviet Army. Hitler summarilydismissed Gehlen, now Genera/ma-jor, in April 1945. (U)

Gehlen did not leave Berlin empty-handed. He knew that the FHO hadsome of the most important files inthe Third Reich and that the posses-sion of these records offered the bestmeans of survival in the post-Hitlerperiod. As the Soviets drew closer toBerlin, Gallen dispersed his staff andtransferred the FHO's intelligence filesto secret locations in Bavaria. There,Gehlen and his handpicked officerswaited to surrender to Americanforces. Gehlen believed that the West-

ern Allies and the Soviet Union, while

wartime partners, would soon become

peacetime rivals. With his knowledge

about the Russians, combined with

the FHO's collective resources,

Gehlen felt he could influence rela-

tions between the East and West and

help shape Germany's role in postwar

Europe. 3 (U)

Secret 69F6R-COOR Di Nag/WITH 1-"S.

Gen. Gehlen (on right) with a group of enlisted men in 1943. (FOUO)

SecretGehlen

The US Army Picks Up Gehlen

Even before Nazi Germany's capitu-lation, Allied forces were on thelookout for German officers andenlisted personnel with intelligencebackgrounds. Indeed, as the Ameri-cans looked for Gehlen, he tried tosurrender to an American unit. Aftera circuitous route, the US Armyfrii-arptildiiiiiid.Gelilen 'and hiè-mento the 12th Army Group Interroga-tion Center near Wiesbaden in June1945. Interned at the "Generals'House," Gehlen reassembled his staffand files under the overall directionof Army Capt. John R. Boker, Jr. (U)

Bolter, who had previously interro-gaked ocher German officers,expressed his feelings as he started hisinterrogation of General Gehlen. "Itwas also clear to me by April 1945that the military and political situa-tion would not only give theRussians control over all of EasternEurope and the Balkans but that, asA result of that situation, we would

have an indefinite period of militaryoccupation and a frontier contiguouswith them." 4 Boker quickly becamethe 12th Army Group's residentexpert on the Soviet Army because ofhis interrogation of German officerswho had fought on the EasternFront. (S)

Gathering Gehlen's staff and recordsrequired some subterfuge on Boker'spart. He was aware, from previousexperience, that "there existed inmany American quarters a terribleopposition to gathering any informa-tion concerning our Soviet Allies."He did, however, gain the support ofCol. Russell Philp, commander ofthe Interrogation Center, and Brig.Gen. Edwin L. Sibert, G-2 for the12th Army Group, to employ theformer FHO staff members to pro-duce reports on the Soviets. 5 Gehlenalso wanted Boker to establish con-tact with some of his frontlineorganizational elements, such asOberstleutnant Herman Baun, whocommanded Stab Walli I, which

conducted espionage work againstthe Soviets using Russian defectorsand provided raw intelligence toGehlen's FH0. 6 Gehlen insisted thathe had access to still-existent agentnetworks in the Soviet Unionthrough Baun's sources. (s)

Army headquarters in Washingtonlearned about Gehlen's activities atWiesbaden and, after some debate,Boker received orders to bring theGerman group to the United States.Army G-2's primary interest, how-ever, centered on the retrieval andanalysis of the FHO records, not inits personnel. Boker, who hadbecome quite attached to his project,resented losing control of Gehlenand his staff section after their secretdeparture for Washington on 21August 1945. Placed as virtual pris-oners in a classified building at FortHunt, Virginia, (known simply asP.O. Box 1142), the Army plannedto use Gehlen in conjunction with alarger project being conducted atCamp Ritchie, Maryland, to compile

70 Secret

SecretGehlen

Maj. Gen. Edwin L. Siben (u)

a history of the German Army on theEastern Front. (S)

Through Boker's efforts (he accom-panied Gehlen's group to the UnitedStates) and those of officials with theEast European Order of BattleBranch at the Pentagon, the situa-tion for the Germans graduallyimproved. The BOLERO Group, as

•Ge-hisAls_unit. became known, servedundei 1-e-d-freCtioti .Of Arm-yEric Waldman until its return to Ger-many in June 1946. By this point,Gehlen's men not only preparedreports based on German records butalso had access to and commentedon American intelligence reports. (S)

SSU Rejects Gehlen

While the Army exploited Gehlenand his officers in Washington, USintelligence also sought to questionGerman scientists and engineersabout Nazi rocket and atomic devel-opments. The OSS, however, played

little sole in these activities. In thethroes- of disbandment during the fallof 1945, OSS declined the Army'sinvitation CO employ Baun in Ger-many. The new Strategic ServicesUnit (SSU) also expressed somereluctance about using the GermanFHO for American intelligence pur-poses.7 SSU, however, did try todetermine the exact nature of therelationship between Gehlen andArmy intelligence. On 25 October1945, Crosby Lewis, SSU's newchief of mission in Germany, askedWinston N. Scott in London for"Special Sources" information fromcounterintelligence files pertaining toStab Walli and various German per-sonalities, including Baun andGehlen. Writing hastily, Lewisinformed London:

For your information only, Baunand a group of other members ofFremde Heere Oct. experts in theG.I.S. on espionage against theRussians, are being collected bytwo officers of the G-2 section,USFET, who are responsible onlyto Gen. Sibert. It appears likelythat Sibert got an OK fromWashington on this when he wasin the US. last month, at whichtime it appeared that OSS mightfold up. Von Gehlen and severalhigh-ranking staff officers whooperated for Fremde Heere Octand for some of the Army Groupstaff on the Eastern Front duringthe war have been flown to theUS.—all this without any con-tact with the OSS here. 8 (S)

In early January 1946, SSU in Ger-many reported co Headquarters whatit had learned "through discreetinquiries" about the Army's activi-ties. SSU described the flight ofGehlen and his FHO staff from

...Berlin and their activities with theAmericans. The report also statedthat Gehlen had recommended thatHerman Baun be contacted to pro-vide further information about theSoviets while the general worked inthe United States. Baun, in fact, hadbeen arrested by the US Army as a"mandatory arrestee" (members ofNazi party organizations and high-ranking German Army and SS offic-ers were subject to immediateapprehension by the Allies) in lateJuly 1945 and interrogated at the3rd Army Interrogation Center thefollowing month. The announce-ment of his arrest and thedistribution of a Preliminary Interro-gation Report raised great concern atArmy G-2 because the Soviets nowdemanded the extradition of bothBaun and Gehlen. 9 (c)

The Army refused to accede to theSoviet demand and secluded Baunand several other FHO personnel atthe Military Intelligence Service Cen-ter (MISC) at Oberursel on theoutskirts of Frankfurt (also known asCamp King and later officially desig-nated as the 7700th EuropeanCommand Interrogation Center).The small group, including GerhardWessel, who had succeeded Gehlenas the head of FHO in 1945, wasquartered at the "Blue House,"where Baun planned to develop afull-scale intelligence organization.According to SSU, G-2 wanted touse Baun to resurrect his Abwehr net-work against the Soviets. Thisproved difficult and SSU reportedthat it "advised them [the US Army]to interrogate Baun at length andhave nothing to do with his schemes

10for further intelligence activity." (s)

In November 1945, in fact, Lewisresponded to a request by GeneralSibert that SSU take over Baun's

Secret 71

SecretGehlen

operation from the Army: Afterreviewing Baun's plans, Lewisrejected them outright, calling them"rather grandiose and vague sugges-tions for the formation of either aEuropean or worldwide intelligenceservice to be set up on the basis ofwartime connections of Oberst Baunand his colleagues, the ultimate tar-get of which was to be the SovietUnion." Lewis found a number ofshortcomings with the employmentof Baun, including cost, control, andoverall poor security measures. Thefact that the Russians wanted to ques-tion Baun and Gehlen, as well asother German intelligence figures,also did not sit well with Lewis. I 1 (s)

Meanwhile, Boleslav A. Holtsman, aSSU/X-2 counterintelligence officerin Munich, had interrogated anotherofficer of Stab Walli, Oberst HeinzSchmalschlager, about German intel-ligence activities against theRussians. In fact, SSU felt thatSchmalschlager was a better source ofinformation on German intelligenceactivities on the Eastern Front thanBaun, a Russian-born German. 12Despite SSU's advice that the Army

Baun and reduce its relianceortf1140-7cierivict inteligerice; the-opposite took place. Baun thrivedunder US Army auspices and heestablished a service to monitorSoviet radio transmissions in the Rus-sian zone in January 1946. Twomonths later, Baun received furtherauthorization from the Army to con-duct both positive andcounterintelligence activities in Ger-

-many. 13 (S)

Operation RUSTY

In July of that year, the Army. returned General Gehlen and the

44By October 1946, Gehlenand Baun claimed to havesome 600 agents operatingthroughout the Soviet zone

of Germany. • •

99

remaining FHO members to Ger-many. At this point, Lt. Col. John R.Deane, Jr., Operations Officer atMISC, published his plans to mergeGehlen's BOLERO group withBaun's already-existent staff, knownas KEYSTONE, at Oberursel. Gen-eral Gehlen would coordinate thefunctips of both elements of theGerman organization while he haddirect responsibility for the Intelli-gence Group. This element evaluatedeconomic, military, and politicalreports obtained by agents of Baun'sInformation Group. I4 The Army des-ignated the entire organization asOperation RUSTY, under the overallsupervision of Col. Russell Philp, Lt.Col. John R. Deane, Jr., and Capt.Eric Waldman, who had precededGehlen's return to Germany fromWashington. I5 (S)

Gehlen's reports, Deane expected,"will be of great value to the G-2Division in that they will furnish theclosest thing to finished intelligencethat can be obtained from sourcesother than U.S." I6 Deane's optimis-tic outlook indeed spurred the Armyto submit even greater number ofrequests to Operation RUSTY. Baunquickly expanded his collectionefforts to meet the Army's insatiableappetite for information on the newSoviet threat in Europe. By October1946, Gehlen and Baun claimed tohave some 600 agents operatingthroughout the Soviet zone of Ger-many who provided the bulk of

intelligence on the Russian order ofbattle.17 (S)

As the Army's demands grew, Opera-tion RUSTY transformed from aselect cadre of German General Staffofficers to large group that sufferedfrom poor cohesion and mixed alle-giances. In addition to covering theSoviet zone, Operation RUSTY tookon new missions in Austria and otherareas of Europe as well as broadenedwartime contacts with anti-Commu-nist emigre groups in Germany andwith members of the Russian VlasovArmy. The few American officersassigned to the Blue House barelyknew the identities of RUSTYagents, thus making it difficult toconfirm the validity of Germanreporting. Baun's recruiting andtraining of his agents proved haphaz-ard while their motivation also raisedquestions because of their black mar-ket activities. Throughout theWestern Allied zones of Germany,men and women openly claimed tobe working for American intelli-gence, leading to many securitybreaches which underminedRUSTY's overall effectiveness. I8 (S)

Lacking internal control and Ameri-can oversight, Operation RUSTYturned out to be an expensiveproject. By mid-1946, the Armyfound itself running out of fundsand it once again tried to persuadeSSU to take over the operation fol-lowing Gehlen's return to Germany.On a tour of SSU installations inGermany, Col. William W. Quinn,SSU's director in Washington, DC,conferred with General Sibert andCrosby Lewis about the Army's pro-posal. Once again, Lewis repeatedmany of his objections that he hadmade earlier in the fall of 1945 andhe suggested that SSU make a "thor-ough study" before any decision by

72 Secret

SecretGehlen

Headquarters. I9 In early September,Lewis specified in writing to GeneralSibert the conditions in which SSUwould be prepared to assume respon-sibility for OperationKEYSTONE. 2° Lewis emphasizedthe need for US intelligence to havecomplete access to all Germanrecords and identities of leading per-sonalities and agents for initialvetting. 21 (U)

Neither Crosby Lewis, SSU's chief ofmission in Germany, nor any otherAmerican official expressed anydoubt about employing America'sformer enemies as sources of informa-tion. The Americans, for example,had embarked upon a large-scaleproject using German officers towrite about their wartime experi-ences. The Army's German MilitaryHistory Program, for example, con-tinued until the mid-1950s andinfluenced US Army doctrinal andhistorical writing. 22 The debateabout Gehlen's project, as it becameshaped since 1945, revolved aroundmore practical matters, such as costand security. Crosby Lewis summa-rized his thoughts about RUSTY forCol. Donald H. Galloway, AssistantMt-ea-W.F.—Of-Special 9peration-S7'inSeptember 1946:

It is my opinion that SSUANIZON should be given com-plete control of the operation andthat all current activities of thisgroup be immediately stoppedbefore further security breachesnullih the fiaure usefianess of anyof the members of the group. I fiir-ther recommend that anexhaustive study be made alongCE lines of the entire operation,

past and present, so that at least,i/it appears that the group is too -insecure to continue an operation,

the wealth of intelligence which iscontained in the minds of the var-ious participants as regardsRussia, Russian intelligence tech-niques, and methods of operationagainst the Russians, could beextracted In conclusion, however,it is most essential that i fa finaldecision is made to exploit theseindividuals either singly or as agroup, SSU understands thattheir employment in the past andtheir exploitation in the fiaureconstitutes to a greater or lessdegree the setting up of an incipi-ent German intelligence service.23(S),

On the conclusion of General Sib-ert's tour as G-2 in Europe, thedebate about whether a civilian intel-ligence agency should be responsiblefor Operation RUSTY shifted fromGermany to Washington. Maj. Gen.Withers A. Burress, Sibert's successoras the Army's chief intelligenceofficer in Germany, appealed toLt. Gen. Hoyt S. Vandenberg,formerly Army Chief of Staff forIntelligence and now Director ofCentral Intelligence, that the newlyformed Central Intelligence Group(GIG) assume control of RUSTY.His memorandum, supported byextensive documentation, noted thatthe Army's headquarters in Germanyconsidered RUSTY to be "one of itsmost prolific and dependablesources. ”24 (C)

General Vandenberg, in turn,directed that the GIG take a freshlook at RUSTY. On 16 October1946, GIG presented its summary ofthe Burress material and dismissedGehlen's Intelligence, or Evaluation,Group as "drawing broad conclu-sions from inadequate evidence and astrong tendency to editorialize."

Lt. Gen. Hoyt S. Vandenberg (u)

Regarding Baun's InformationGroup, GIG determined that "thereis no evidence whatsoever which indi-cates high-level penetration into anypolitical or economic body in theRussian-occupied zone." The reviewalso blasted Operation RUSTY forits yearly budget of $2.5 millionwhile CIG's German Mission costonly $120,000. GIG decidedlyrejected assumption of RUSTY,although it did call for a full study inorder to identify salvageable aspectsof the operation. The report madetwo significant comments thatreflected CIG's overall frame ofmind:

I. It is considered highly undesir-able that any large scale US-sponsored intelligence unit be per-mitted to operate under evensemi-autonomous conditions.Unless responsible US personnelare filly acquainted not onlywith the details of each operationcarried out but also with the

Secret 73

SecretGehlen

identities and backgrourid of allindividuals concerned, no highdegree of reliability can be placedfrom an American point of viewupon the intelligence produced.

2. One of the greatest assets avail-able to US intelligence hasalways been the extent to whichthe United States as a nation istrusted and looked up to by dem-ocratic-minded peoplethroughout the world. Experi-ence has proven that the bestmotivation for intelligence workis ideology followed by commoninterests and favors. The Ger-mans, the Russians, theirsatellites, and, to a lesser extent,the British, have employed fear,direct pressure of other types,and, lastly, money. With most ofthese factors lacking to it, Opera-tion RUSTY would appear todepend largely on the last andleast desirable. 25 (C)

The Bossard Report

Inligerertcr-detierarVandenberg-tnOctober 1946, Colonel Gallowayreiterated CIG's concerns aboutRUSTY's costs and questions aboutits security. He recommended thatGIG not take over the operation.26The Army and GIG, however, agreedin the fall of 1946 that the GIGcould conduct its own examinationof RUSTY. As a result of discussionsheld in New York City in December,Samuel B. Bossard arrived at Oberur-sel in March 1947 to evaluate theGerman operation and its futurepotential. Unlike Crosby Lewis,Bossard had a different, and favor-able, impression of OperationRUSTY during the course of his

two-month study. "The whole pat-tern of operation," Bossardprodaimed in the first paragraph ofhis report, "is accordingly positiveand bold; the factors of control andrisk have become secondary consider-ations and thus yield to the necessityof obtaining information with speedand in quantity.”28 Cs)

In a stunning reversal of earlier criti-cism of RUSTY, Bossard comparedthe operation to the wartime work ofOSS with various Resistance groupswhere results mattered more thancontrol. He dismissed "the long billof complaints prepared by our owncounterintelligence agencies againstthe lack of security in this organiza-tion." Bossard declared, "in the end[this] serves more as a testimony tothe alertness of our counter-intelli-gence agencies and a criticism of ourown higher authorities for not effect-ing a coordination of interests than acriticism of the present organizationand its operating personnel."29 (S)

Bossard's report marked the firsttime that either SSU or GIG had theopportunity to examine on its ownthe operation and to question bothGehlen and Baun as well as othermembers of the German operation.Impressed with the anti-Communistsympathies of the Germans and thebreadth of their contacts (especiallywith various emigre groups), Bossardfound "no evidence to prove that theunusual confidence that had beenplaced by American authorities inthe German operators had beenabused." Bossard made eight recom-mendations to the DCI, with thebottom line being that the GIGshould take responsibility forRUSTY. 3 ° (s)

Bossard believed that OperationRUSTY had proven to be a useful

R. Adm. Roscoe H. Hillenkoetter (Li)

anti-Communist intelligenceorganization. If the United Statesabandoned RUSTY, it would stillhave the same intelligence require-ments as before, although with fewerresources. Likewise, American con-trol of the German operation couldonly strengthen the overall projectand reduce its security risks. Bossardfelt that Operation RUSTY offeredthe Americans a readymade, knowl-edgeable German intelligence servicethat formed -a "strong core of resis-tance to Russian aggression." 31 (S)

Bossard's findings unleashed a flurryof activity in Washington during thesummer and fall of 1947. On 3 June,Colonel Galloway recommended toR. Adm. Roscoe H. Hillenkoetter,who had just taken over as DCIfrom General Vandenberg, that heapprove the Bossard Report. Gallo-way added that CIG's takeover ofRUSTY should be cleared throughthe G-2 in Germany and brought tothe attention of the National Intelli-gence Authority, predecessor to the

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SecretGehlen

National Security Council. ColonelGalloway remained concerned thatsupport of the German intelligenceservice could conflict with both StateDepartment policies in dealing witha "potential resistance group" as wellas interfere with the signals intelli-gence work of the US Army andNavy. 32 (S)

•A few days later, Admiral Hillenkoet-ter prepared a memorandum for theSecretaries of State, War, Navy, asWell as President Truman's personalrepresentative to the National Intelli-gence Authority on OperationRUSTY. It outlined the organiza-tion's history and CIG's earlierexamination into the question ofassuming responsibility. In his covermemorandum, Admiral Hillenkoet-ter expressed the "strong"recommendation that "OperationRUSTY be liquidated and that CIGassume no responsibility for its con-tinuation or liquidation."33Hillenkoetter felt that the GIGshould have no connection withRUSTY without the knowledge andapproval of the National IntelligenceAuthority. (S)

Hillenkoetter's recommendation&efecin Piny circles; =a-nd he

held a high-level conference on19 June 1947 to discuss Army-CIGrelations and Operation RUSTY.Having been shown the proposedNIA memorandum outlining Haien-koetter's rejection of RUSTY, Maj.Gen. Stephen J. Chamberlin, theArmy's Director of Intelligence,asked that the document be with-drawn in its entirety. He stated thathe did not plan to discuss the mattereven with the Secretary of War. Con-sequently, the Army momentarilyrelented in its efforts to have GIGassume responsibility for RUSTY.Hillenkoetter warned Chamberlin

about the national security risksposed.by the US support of a resur-gent German General Staff andintelligence service. General Cham-berlin agreed that this perceptioncreated problems and promised tohave Maj. Gen. Robert L. Walsh, theArmy's G-2 in Germany, overseetighter control over the operation.34(S)

While the CIG and the Armydebated the merits of OperationRUSTY in Washington, Lt. Col.Deane at Oberursel oversaw thealmost-daily growth of Gehlen'sintelligence service. The rapid expan-sion of agents and reports in 1946presented a challenge in terms of con-trol and quality. General Gehlen,upon his return that summer, discov-ered that Baun had his own plans fora German intelligence service whichdid not meet with Gehlen's approval.Baun's ambitious grasp for control ofthe organization, coupled withmounting questions about his agentsand finances, resulted in his gradualremoval by the Americans andGehlen during the course of 1947.35The Army, in the meantime, didtake some steps to improve its con-trol over RUSTY, including theformation of a military cover organi-zation, the 7821st CompositeGroup.36 Immediately beforeRUSTY's transfer from Oberursel toits own compound in Pullach, asmall village near Munich, in the latefall of 1947, Lt. Col. Willard K.Liebel replaced Deane as OperationsOfficer. 3I (S)

CIA's Misgivings

There was still little enthusiasm forRUSTY after the establishment ofthe CIA in the fall of 1947. HenryHecksher, who had served' as chief of

Henry Hedcsher. Photo courtesy ofAraxi Kobrin. (u)

the German Mission's Security Con-trol (or counterintelligence) branch

in 1946-47, provided an update toRichard Helms, chief of ForeignBranch M (which handled CIA's

operations in Central Europe), inmid-March 1948 about the Germanintelligence organization's activities.Hecksher observed that whileRUSTY "enjoys the unqualified back-ing of the Army in Germany," he felt

that the Soviets must have pene-trated the German group. "The

political implications alone (leaving

aside the espionage angle) would

come in handy if the Russians at any

time should look for a pretext to pro-

voke a showdown in Western

Germany," Hecksher declared. Like-

wise, he was concerned about "the

political implications of sponsoring

an organization which in the opinion

of qualified observers constitutes a re-

activation of the German Abwehrunder American aegis." 38 (S)

Secret 75

Photo courtesy of Araxi Kobrin. (u)

SecretGehlen

With great disgust,acting chief of CIA's Karlsruhe opera-tions base, related his experienceswith RUSTY in an August 1948memorandum to Headquarters.

3 first encountered Baun'soperatives in the summer of 1946

_gence Corps (CIC) arrested anumber of Germans who claimed towork for American intelligence. CICinformea C.. lbout thesearrests, and he launched an investiga-tion as to the background of theGerman agents. He found thatsome of the agents employed were

SS personnel with known Nazirecords and, in most cases, undesir-able people. Recruiting methodsthen employed," he complained,"were so loose that former Germanofficers and noncoms were blindlybeing approached to work for Ameri-can intelligence in espionage activitydirected against the USSR.”39 (S)

RUSTY's approach went against allprinciples of intelligence work. "Inthe recruitment methods no atten-tion was paid to the character of therecruits, security, political leanings orquality, with the result that many ofthe agents were blown almost imme-diately: IL. J Felt thatRUSTY's "recruiting methods indi-cated a highly nationalistic groupof Germans who could easily be-come the nucleous [sic] of serioussubversive activity against any occu-pying power. At the same time,V-- _3 commented, "the distribu-

tion of operational supplies, money,etc. was so loose and elaborate thatthe influence on the black marketcertainly was considerable."40 (S)

.3 expressed his displeasurewith RUSTY and protested anyplans for future association betweenthis group and CIA. In a lengthy

40'summary, C presented theviewpoint of many CIA officers:

The general consensus is thatRUSTY represents a tightly knitorganization offormer Germanofficers, a good number of whichformerly belonged to the Germangeneral staff Since they have aneffective means of control overtheir people through extensive

fiends, facilities, operational sup-plies, etc., they are in a positionto provide safe haven for a goodmany undesirable elements fromthe standpoint of a fieture demo-cratic Germany. Most of theseofficers are unable to findemployment, and they are there-fore able to maintain theirformer standard of living with-out having to put up with thepresent difficulties of lift in con-quered Germany. They arelikewise able to maintain theirsocial standing as former officersand to continue their own studyin the military field and con-tinue training along militarylines. The control of an extensiveintelligence net makes it possible

for the leaders to create a cadreof officers for the perpetuation ofGerman general staff activity.The organization of RUSTYmakes it possible for them to con-tinue a closely knit organizationwhich can be expanded at will.'"(S)

formerlySSU's X-2 chief in Germany andnow head of CIA's Munich opera-tions base, reported his views ofRUSTY in a July 1948 memoran-dum to Gordon M. Stewart, CIA'schief of mission in Germany. Likehis colleagues, 1C-. protested

76 Secret

and GordOnM. Stewart. Photo courtesy of Araxi Kobrin:(u)

SecretGehlen

RUSTY's poor security practices andits "freewheeling" methods of agentrecruitment .= expressedparticular distaste at RUSTY's abuseof the denazification laws whichundermined the operation's overallstanding. c quoted a "localcynic" who said that "American intel-ligence is a rich blind man using theAbwehr as a seeing-eye dog. The onlytrouble is—the leash is much too

-long. »42 (s)

In summarizing the sentiments ofAgency officials in Germany, Rich-ard Helms told Colonel Galloway inIvlarch 1948 that "nothing aboutRUSTY has been altered whichcould lead us to change the positiontaken by us last year. In fact, thereports in the Soviet-dominatedpress in Germany concerning the useof former German staff and intelli-gence officers are such that there is

no question that the Russians knowthis operation is going on eventhough they may have some of thedetails wrong." Helms added, "cer-tainly the fact that so much publicityhas been given to this indicates seri-ous flaws in the security of theoperation. »43 (s)

Little by little, however, the Armymanaged to get CIA more involvedwith RUSTY, despite complaintsfrom the field and even Admiral Hill-enkoetter's overall opposition to theproject. In December 1947, GeneralWalsh again brought up the issue ofCIA's taking over of RUSTY with'

,D then CIA's chief ofbasein Berlin. Walsh maintainedthat, while the handling of RUSTYby the Army in 1947 might havebeen considered a "sin of commis-sion," for the Americans not tocontinue the operation in 1948would constitute a "sin of omis-sion."44 (S)

As late as mid-1948, Admiral Hillen-koetter resisted the Army's overturesto assume control of RUSTY. In July1948, the DCI informed the Army'sDirector of Intelligence that he didnot want the Army to use a 1946 let-ter of agreement between the WarDepartment and GIG to obtain ser-vices, supplies, and equipment forthe 7821st Composite Group, theArmy's cover organization forRUSTY. Hillenkoetter believed thata new, and separate, agreementshould be drawn up between bothorganizations to support the Army'srequirements f-or RUSTY. 45 (5)

At the same time, Hillenkoetter pro-

vided General Chamberlin withsome news about RUSTY that hehad learned from various sources. Inone case, Samuel Bossard, now inEngland, had received a letter from a

..mysterious "R. Gunner" about"some dangerous points." Gunner,believed to be General Gehlen, askedfor Bossard's "personal advice con-cerning certain business questions"and wanted him to come toMunich.46 Disagreements betweenGehlen and his American militarycounterpart, Lieutenant Colonel Lie-bet, now made their way to thehighest levels of CIA. The entireproject appeared on the verge of dis-integration.47 (S)

The Critchfield Report

Matters soon came to head whichforced the CIA to act whether itshould maintain a German intelli-gence organization. While the Armyissued RUSTY with priorities interms of targets and regions, MajorGeneral Walsh, the Army's chiefintelligence officer in Germany,informed Admiral Hillenkoetter inOctober 1948 that the Army couldno longer fund RUSTY for any activ-ities other than order of battleintelligence." During a visit to Ger-many, the DCI discussed the matterwith Walsh and agreed to providelimited funds while CIA conductedyet another investigation of theArmy's German operation. Immedi-ately before Admiral Hillenkoetter'sagreement with the Army, ColonelGalloway and Gordon Stewart con-ferred about RUSTY. Theyconcluded that the Agency needed tobegin penetration efforts againstRUSTY, "or at least [be] carefullywatched and reported upon, and thatwe should pay particular attention toits attempts to become the officialGerman intelligence service." 49 (5)

The die was now cast, leading CIAdown a long path that has now indel-ibly linked the Agency with General

Secret 77

Secret

Gehlen

Col. James. H. -Crirelfielci. Photo courtesy oftrirchfield. (U)

Gehlen and his intelligence service.On 27 October 1948, Colonel Gallo-way told Stewart that he wantedJames H. Critchfield, the newlyarrived chief of Munich operationsbase, to examine RUSTY and pre-pare a report similar to that done byliocsarAi-in1947. Critchfield'sman-date- s-crecite-d—th;t he Should evaluateRUSTY's OB facilities and deter-mine which elements should eitherbe j, by CIA, exploited, leftwith the Army, or liquidated. Thereport, Galloway noted, should bethorough but also completed withina monch. 50 (S)

Critchfield, a young US Army com-bat veteran, had served in militaryintelligence staff positions in bothGermany and Austria when hejoined the new CIA in 1948. Heembarked on his new project withvigor and met his deadline when hecabled a summary of his findings co

Washington on 17 December. 5I Hisfull report, with annexes, arrived atHeadquarters after that point. Anextensive study, Critchfield andseveral associates examined theArmy's relationship with RUSTY, itsfunding, organi-zational structure,intelligence reporting, overall opera-tions and procedures, and Gehlen'sown future projections for his group.Critchfield's report stands as theCIA's (and its predecessors) mostthorough review of the growing Ger-man intelligence service.52 (S)

Critchfield's report also set the tenorfor future CIA relations withGehlep. While he made severalimportant points, Critchfieldobserved that CIA could not ignorethe presence of RUSTY. He wrote:

In the final analysis, RUSTY isa re-established GIS which hasbeen sponsored by the present de

facto national government ofGermany, i.e. by the militaryoccupational forces. Because the4,000 or more Germans whocomprise RUSTY constitute agoing concern in the intelligencefield it appears highly probablethat RUSTY will emerge as astrong influence, if not the domi-nant one, in the new GIS.Another important considerationis that RUSTY has closest tieswith ex-German General Staffofficers throughout Germany. Ifin the _Pure, Germany is to playany role in a Western Europeanmilitary alliance, this is animportant factor. 53 (S)

As Critchfield pointed out, RUSTYwas a fait accompli, regardless ofwhether CIA wanted the Germanorganization or not. He advocatedthe Agency's assumption of RUSTY

because "from an intelligence view-point, it seems desirable that CIAenter RUSTY at that point where itcan control all contacts and opera-tional developments outside ofGerman territory."54 AdmiralHillenkoetter, however, reluctantlyagreed to this move and made it clearthat "CIA was not asking to cakeover Rusty and was expressing a will-ingness co do so only because theArmy was requesting it." 55 Cs)

Gen. Omar Bradley, the Army'sChief of Staff (and soon-to-be Chair-man of the Joint Chiefs of Staff) andSecretary of Defense James V. Forr-estal both supported the Agency'smove, as did individual members ofthe National Security Council.Throughout the first months of1949, the Agency, the Departmentof the Army, and Gen. Lucius D.Clay, US military governor of Ger-many, debated the issue of the CIA'sassumption of RUSTY. 56 Likewise,Critchfield in Pullach had his handsfull with an ongoing dispute betweenGehlen and Colonel Philp, the newUS Army commander on thescene. 57 With General Clay's depar-ture from Germany in May, theAgency assumed control on 1 July1949.' 8 (s)

CIA's Trusteeship

Even before the official transfer inmid-1949, Critchfield specified theterms of agreement between the CIAand the German organization. Thebasic agreement reached by Gritch-field and GeIden in June 1949recognized that "the basis for US-German cooperation in this projectlies in the mutual conviction of therespective parties that increasingcooperation between a free and dem-ocratic Germany and the United

78 Secret

Secret

Gehlen

States within the framework of theWestern European Union and theAtlantic Community is indispensablefor the successful execution of a pol-icy of opposition and containment ofCommunist Russia." 59 (S)

Critchfield acknowledged that "themembers of the German staff of thisproject are acting first and foremostas German nationals working in theinterest of the German people incombating Communism." Yet, theAgency's chief of base insisted thatuntil Germany regained its sover-eignty and the two countries madenew arrangements, the CIA wouldremain the dominant partner andcall the shots. Critchfield, for exam-ple, would specify US requests toGehlen for intelligence priorities andthat "complete details of operationalactivities will be available to USstaff." While US officials would dealwith the Germans in "an advisoryand liaison capacity," Critchfieldplanned to closely examine theGehlen Organization. "All opera-tions outside of Germany will,"Critchfield noted, "be reduced to aproject basis with funds provided foreach project as approved and on the1a.asitmEcontinu_ leview of era-tionar creTans and production." tr(s)

Relations between the Agency andGerman intelligence service (knownvariously as ODEUM and ZIPPER)during the first half of the 1950swere often at odds. 6I Gehlenresented the American intrusion,which was far more sweeping thanthe Army's : In 1950, for example,Critchfield reduced the number ofGehlen's projects from 150 to 49,and he soon whittled this latter num-ber to 10. CIA cut the vast bulk ofGerman projects for nonproductionof any worthwhile intelligence oreven possessing any potential value.

Critchfield bluntly told Gehlen in1950 that "it was high time he recog-nized the fact that his organization,while viewed in a MOSE creditablelight for its tactical collection andespecially its military evaluationwork, was considered definitely sec-ond class in any intelligence activityof a more difficult or sophisticatednature, and that if he had any aspira-tions beyond that of producing agood G-2 concern for the future Ger-man Army, some drastic changeswere in order."62 (s)

While the CIA and its predecessorshad long protested against the use ofthe German intelligence service, theAmerican service soon found itselfdefending its own ties to the GehlenOrganization. As early as 1953, thetwo agencies had become soentwined that even Roger M. Keyes,Deputy Secretary of Defense, criti-cized the Agency's role in Germany.Frank Wisner, the Deputy Directorfor Plans, responded that "there is noadequate answer or correction of theassumption that we rely very largelyupon the. ZIPPER_effort for intelli-gence on Eastern Europe generally."Wisner stated, "this is a common fal-lacy which is always cropping up andit should be pointed our that we haveour own independent operations inaddition to the Zipper effort." 63 TheAgency also found that supportingthe German service to be an expen-sive proposition with little actualcontrol over its personnel. 64 (S)

Cutting Both Ways

CLA's support of the Gehlen Organi-zation proved a double-edged sword.On the one hand, US assistance tothe nascent West German intelli-gence service strengthened tiesbetween the two countries. The

...United States and the Federal Repub-lic of Germany remained close alliesthroughout the long years of theCold War. On the other hand, CIA'srelationship with the Gehlen Organi-zation also had longlasting impact interms of counterintelligence and War-saw Pact propaganda efforts. (U)

The Gehlen Organization neverescaped from its roots as successorsto Nazi Germany's military and intel-ligence circles. Gehlen's intelligenceservice suffered devastating penetra-tions by the KGB, witnessed by theHans Clemens and Heinz Felfe spyscandals of the early 1960s. Theseintelligence failures highlighted theCIA's concerns about the GehlenOrganization which it had expressedduring the period under the USArmy's contro1. 65 The KGB's abilityto use former Nazis as agents in the1940s and 1950s led to furtherexploitation by the East GermanStasi until the fall of the Berlin Wallin 1989. Reunited Germany has notyet come'to terms with the fullextent of the Communist penetra-tion of West Germany's military andcivilian agencies. In large part, theBundesnachrichtendienst (BND), theWest German successor to theGehlen Orzanization, was a chief tar-get because-of its links to the ThirdReich. 66 (u)

While the Agency's support to theGehlen Organization remains a con-troversial topic, it took on thisresponsibility after lengthy debateand with the full knowledge of therisks. The CIA recognized that itsties to Gehlen meant it inheritedmany negative aspects that had alsoplagued the Army between 1945 and1949. Gehlen's intelligence on theSoviet Union, however, outweighedthese problems during the hottestyears of the Cold War. The history

Secret 79

of postwar Germany needs to takeinto account the origins of the CIA'strusteeship of the Gehlen Organiza-tion. (u)

NOTES

1. For an "open" history of the Ameri-can rdationship with the Germanintelligence service after World WarII, see Mary Ellen Reese, GeneralReinhard Gehlen: The CIA Connection(Fairfax: George Mason UniversityPress, 1990). Other books, of varyingdegrees of reliability, include E.H.Coolcridge (nom de plume for EdwardSpiro), Gehlen: Spy of the Century(London: Hodder and Stoughton,1971); Heinz Hohne and HermannZolling, Network: The Truth aboutGeneral Gehlen and His Spy Ring,trans. by Richard Barry (London:Secker and Warburg, 1972); andlastly, Reinhard Gehlen, The Service:

he Memoirs of General ReinhardGehlen, trans. by David Irving (NewYork: World Publishing, 1972). Adraft manuscript by Jarnes H. Critch-field, entitled Germany: From Enemyto Ally 1946-1956, promises to addsignificantly to the literature on thistopic. (U)

2. For a radical view regarding theCIA's link with the West Germanintelligence service, sec Carl Oglesby,"Reinhard Gehlen: The Secret Treatyof Fort Hunt," Covert Action Informa-tion Bulletin 35 (fall 1990), pp. 8-14.(U)

3. For a review of the organization ofGerman intelligence during the war,including the Fremde Heer Ost,written by German officers, see"Development of the Secret Informa-tion Service from the End of WorldWar I until the End of World WarII," (undated). See also SAINT, Lon-don to SAINT, "The GermanIntelligence Service and the War," 7January 1946, XX-10403, enclosing aBritish report, "The German Intelli-gence Service and the War," alldocuments in Directorate of Opera-tions Records, Job C- , Box2, Folder 1, Central IntelligenceAgency Archives and Records Center(S). Sec also David Kahn, Hitler'sSpies: German Militaty Intelligence inWorld War II (London: Hodder andStoughton, 1978). (S)

SecretGehlen

4. Boker's account of his role during1945-46 is found in John R. Boker,Jr., "Report of Initial Contacts withGeneral Gehlen's Organization," 1May 1952, in DO Records, Job C

Box 2, Folder 2, CIA ARC(S).

5. A general history of this early period'is found in Chief, EE to EE/G,ATTN: "C.- , "History of theGehlen Intelligence Organization,"28 March 1960, enclosing C-

-1 "History of theGehlen Intelligence Organization,"September 1953, DO Records, JobC... .7 Box 1, Folder 5, CIA

ARC (S) (hereafter cited as "GehlenHistory"). See also C- _a

3 Clandestine Ser-vices Historical Series C. -= DCIHistory Staff, 1973, 4 volumes, (here-after cited as CSHP _3 (S).

6. Further details about Stab Walli arefound in Baun's interrogation inCounterintelligence War Room Lon-don, Situation Report No. 154,"Leitstelle - I OST (Walli), 15 Janu-ary 1946, (S), in Herman Baun, File

DO Records. (S)

7. Col. W.W. Quinn to CoL DonaldH. Galloway, "Operation Rusty," 5December 1946, DO Records, Job

3 Box 5, Folder 9, CIAARC (s).

8. Crosby Lewis to Winston M. Scott;25 October 1945 (S), Baun,

See also Scott to Lewis, 30October 1945, (S), Baun, C 3(S)

9. Preliminary Interrogation Report, 16Aueust 1945, (C), in Baur), C

(C)

10. SAINT, AMZON to SAINT, "Rus-sian Experts of German IntelligenceService," 8 January 1946 (S), in Baun,G (s)

11. "Gehlen History," pp. 14-15 (S).SSIJ's objections to takeover in 1945

80 Secret

'

Secret

Gehlen

are outlined in Lewis co ColonelGalloway, "KEYSTONE Opera-tion," 22 September 1946, DORecords, job E. Box 36,_Folder 8, CIA ARC (S). A copy ofthis same memorandum with anattachment is also located in DORecords, job C- 2 Box 3,Folder 1, CIA ARC (S).

12. SAINT, AMZON to SAINT, "Rus-sian Experts of German IntelligenceService," 8 January 1946 (S) and unti-tled note to "Reg Phelps," in Baun,

(S)

13: "Gehlen History," pp. 15-16 (S).

14. For a roster of the Intelligence Group(also known as the EvaluationGroup) and the Information Group,see "Gehlen History," pp. 21-22. (S)

15. Lt. Col. John R. Deane, Jr., Opera-tions Officer, USFET MISC, to G-2,USFET, "Plan for the Inclusion ofthe BOLERO Group in OperationRUSTY," 2 July 1946, DO Records,Job Box 2, Folder 2,CIA ARC (TS). The operation is vari-ously described as gaining itsdesignation from either a nicknamegiven to Lieutenant Colonel Deane'syoung son or that given to ColonelRussell Philp, commanding officer at"Basket," the secure facility at Blue

fteinhardGehlen, p. 207, and chief of station,Karlsruhe to Chief, FBM, "Bi-Weeldy Letter," 4 December 1948,MGM-A-859, DO Records, Job C

, Box 5, Folder 9, CIA ARC(S) -2 states emphatically thatOperation RUSTY gained its namefrom the son of Lieutenant ColonelDeane, see CSHP L. 3 vol. 1, p. V-1. (S)

16. Deane tc; G-2, USFET, 2 July 1946;for a copy of one Evaluation Report,see Evaluation Report No, 2, Opera-tion RUSTY, "Political and MilitaryTraining of German PWs in USSRfor Commitment in Germany,"27 September 1946, DO Records,Job C. _3 Box 1, Folder 5,

CIA ARC (S). This EvaluationReport was prepared in response to aMay 1946 US Army request to inves-tigate and report all measures takenby the Soviets to form a Germanarmy. This same folder also containsnumerous Intelligence Reportsproduced by Operation RUSTY in1946. (S)

17. Lt. Col. J.L. Collins, Chief, Informa-tion Section, to Chief, IntelligenceBranch, "Operation Rusty," 24 Sep-tember 1946, DO Records, Job

•n Box 6, Folder 15, CIA ARC(S).

18. For a description of many of theseproblems, see "Gehlen History," pp.24-29, 34.:Examples of SSU andCIG reporting about RUSTY's secu-rity problems are numerous and canbe seen in C._ .7 toChief, IB, "Agent Net Operating inthe Bamberg Vicinity," 17 September1946; to-3 "American IntelligenceNetwork," 18 March 1947, enclosing"American Intelligence Network," 25January 1947; and various intelli-gence reports about OperationKEYSTONE from CIG's variousagents in Munich in 1947. All ofthese documents are located in DORecords, Job Box 5,Folder 8, CIA ARC (S).

19. Lewis to Galloway, "KEYSTONEOperation," 22 Se ptember 1946,DO Records, Job C. ,3 Box36, Folder 8, CIA ARC (S). See alsoundated, unclassified summary ofLewis's cables to Washington in 1946in DO Records, Job C. Box5, Folder 9, CIA ARC. (S)

20. The Americans referred to the Ger-man intelligence service through avariety of project names, includingBOLERO, KEYSTONE, andRUSTY. The use of the term"RUSTY" supplanted KEYSTONEin 1946 until CIA's assumption in1949. After that point, the opera-tional terms changed once again. (C)

.021. Lewis to Sibert, "Operation KEY-STONE," 6 Sep tember 1946, DORecords, Job C. 3 Box 2,Folder 2, CIA ARC (S). A declassi-fied copy of this same memorandumalso appears in Record Group 226,Records of the Office of Strategic Ser-vices, Entry 178, Box 4, Folder 39,National Archives and RecordsAdministration. (S)

22. Kevin Soutour, "To Stem the RedTide: The German Report Series andIts Effect on American Defense Doc-trine, 1948-I954,"Journal ofMilitary History 57 (October 1993),pp. 653-688. (U)

23. Lewis to Galloway, "KEYSTONEOperation," 22 September 1946,DO Records, Job c Box36, Folder 8, CIA ARC (S).

24. Copies of WA Burress to Hoyt S.Vandenberg, "Operation RUSTY-Use of the Eastern Branch of theFormer German Intelligence Ser-vice," 1 October 1946, DCI RecordsJob C. Box 13, Folder 13,(C) and DCI Records, Job C.

Box 11, Folder 481, (S),CIA ARC. A full copy of the Burressmemorandum and supporting docu-ments can be found in DO Records,Job C... Box 2, Folder 2,CIA ARC (TS). The "VandenbergReport" is the best summary reportabout Operation RUSTY during theArmy's early period of control. (S)

25. "R.K." to Deputy A, "OperationRUSTY," 16 October 1946, DORecords, Job C. Z., Box 5,Folder 2, CIA ARC (C). The identityof the correspondent is uncertain atthis time although it may have beenRolfe Kingsley. In November 1946,General Vandenberg asked that theArmy send Gehlen and Baun to theUnited States for conferences withCIG. See DCI, Memorandum forMajor General Stephen J. Chamber-lin, Director of Intelligence,"Operation RUSTY-Use of theEastern Branch of the Former Ger-man Intelligence Service,"

Secret 81

SecretGehlen

20 November 1946, DCI Records,Job C.- Box 13, Folder 549,CIA ARC (C).

26. Galloway to DCI, "OperationRUSTY," 17 October 1946, DORecords, Job C. Box 5,Folder 9, CIA ARC (S). This docu-ments appears as an annex to theBossard Report. (S)

27. The New York meeting on 19December 1946, organized by Gen-eral Vandenberg, brought together anumber of the top American intelli-gence figures to discuss RUSTY.Held at the apartment of AllenDulles, the meeting included Dulles,William H. Jackson (both specialadvisors to CIG), Brig. Gen. EdwinK. Wright (DDCI), Brigadier Gen-eral Sibert, Colonel Galloway, Col.Laurin L. Williams of Army G-2,Lieutenant Colonel Deane fromRUSTY, Richard Helms, and SamuelBossard. The group agreed that CIGshould hold an investigation ofRUSTY "on the ground" because"certain parts had possible long7rangevalues." t SHP-n n vol. 1, pp. V-7through V-8. See also RichardHelms, Memorandum for theRecord, "Operation Rusty," 19December 1946, DO Records, Job

Box 5, Folder 9, CIAARC (no cl2ssification listed).

28. See chief of station, Karlsruhe toChief, Munich operations base,"RUSTY," 2 November 1948, MGK-A-3955, enclosing undated, unsignedBossard Report with charts, DORecords, Job C. .3 Box 3,Folder I, CIA ARC (TS). Further dis-cussion of the Bossard Report isfound in "Gehlen History," pp. 34-37. It is difficult to discern Bossard'soriginal report to the DCI becauseseveral versions appear to have sur-vived. In a three-page memo to theDCI on 29 May 1947, Bossard rec-ommends that the NationalIntelligence Authority make the finaldetermination whether CIG have anyparticipation in RUSTY. This memois generally lukewarm about the oper-ation. In a second, but similar, memo

of 29 May 1947, Kossard simplyrecounts RUSTY's background andits advantages and disadvantages. Hedoes not make a recommendation. Ina third and longer report (undated),Bossard recommends that CIGassume control of RUSTY. I haveselected the fourth report (listedabove) as the ultimate Bossard report.The three other versions are locatedin DO Records, Jot. Box5, Folder 9, CIA ARC (S).

29. Ibid.

30. Ibid

31. Ibid.

32. Galloway, Memorandum to DCI,"Operation RUSTY," 3 June 1947,DOTS 1171, DO Records, Job C

Box 498, Folder!, CIAARC (S). A draft of the cable fromCIG to G-2 EUCOM is alsoincluded. A copy of the actual cable,Director, CIG to G-2, EUCOM, 5June 1947, OUT 2890, is found inDO Records, Job C. Box 7,Folder 203, CIA ARC (TS).

33. DCI to Secretaries of State, War,Navy, and Personal Representative ofthe Present, "Operation 'RUSTY,'"DCI Records, Job C- Box11, Folder 481, CIA ARC (S). Thisdocument contains marginalia, dated20 June 1947, written by Brig. Gen.Edwin K. Wright, DDCI, about thedecision not to send this rnemoran-durn. (S)

34. Brig. Gen. Edwin K. Wright, Memo-randum for the Record, 20 Tune1947, DCI Records, Job C.-Box 13, Folder 549, CIA ARC (C).In addition to Hillenkoetter andChamberlin, Gen. Wright and Col.Williams also attended the meeting.For another description of this meet-ing, see Cable, Washington toHeidelberg, 27 June 1947. OUT3718, DO Records, Job CBox 9, Folder 220, CIA ARC (TS).

"55. The Army and CIG discussed bring-ing Baun to America for severalmonths in order to prevent him from"going independent." SamuelBossard, Memorandum for the File,"Removal of Lt. Col. Hermann Baunto the United States," 3 September1947. DOTS-1121, DO Records,Job C. Box 498, Folder 4,CIA ARC (S). The situation betweenBalm and Gehlen created internaldivision within the German intelli-gence service within days after thegeneral's return to Germany in 1946.Gehlen, however, retained Baun andsent him to Iran to conduct strategicplanning in the Middle East. He diedin Munich in December 1951 at theage of 54. (S)

36. CIG's recommendations to GeneralChamberlin for changes in RUSTYare found in a 27 June 1947 untitled,unclassified note written by Bossard.DO Records, Job C- -Z Box 5,Folder 9, CIA ARC. The implemen-tation of some of the changes areannounced in Headquarters, FirstMilitary District, General OrdersNumber 54, "Organization of 7821stComposite Group," 1 December1947, DO Records, Job C_Box 2, Folder 3, CIA ARC. (C)

37. Reese, General Reinhard Gehlen, pp.93-97. Relations between LieutenantColonel Licbel and General Gehlendeteriorated quickly after Liebel'sarrival; in part due to the Americanofficer's insistence on obtainingidentities of the German agents.Lieutenant Colonel Liebel alsocriticized Gehlen (referred by hisoperational name Dr. Schneider) forpoor security practices. CaptainWaldman supported Gehlen's standduring this period, which createdtension within the American chainof command. For this letter, see[Colonel Liebel], Memorandum to"Dr. Schneider," 3 March 1948 andGehlen's vehement reply, "Dr.Schneider," Memorandum toColonel Liebel, 11 March 1948, inDO Records, Job C. 3 Box 5,Folder 9, CIA ARC (S). Liebe'departed Pullach in August 1948 and

82 Secret

SecretGehlen

Col. Russell Philp, an.old "BlueHouse" veteran, arrived as his succes-sor in December 1948. Liebel's ownblack market activities and the poordiscipline of US personnel at Pullachultimately injured the Army's effortsto tighten control over the Germans.CSHP C ..J Volume I, pp. 7-9. (S)

38. Henry Hecicsher: to Helms, "Opera-tion RUSTY," 18 March 1948, DORecords, Job Box 5,Folder 8, CIA ARC (S).

39. Chief of Station, Karlsruhe to Chief,FBM, "RUSTY," 19 August 1948,MGKA-2722, DO Records, Job

Box 5, Folder 8, CIA ARC(S).

40. Ibid.

41. Ibid

42. Chief, Munich operations base, toacting chief of station, Karlsruhe,,"RUSTY," 7 July 1948, MGM-A-602, DO Records, Job CBox 5, Folder 8, CIA ARC (S).

43. Richard Helms to ADSO, "RUSTY,"19 March 1948, in DO Records, Job

Box 5, Folder 8, CIAARC (S). For a copy of one such

_Si:mkt article, see.chief of station,."-"Plaeltserg -tti Chief, FBK"RUssian

Newspaper Attack on American Intel-ligence Activities," 6 February 1948,MGB-A-1248, DO Records, Job C.

Box 5, Folder 8, CIA ARC(C).

44. "Highlights of Conversation withW," undated, in DO Records, JobC. -.I, Box 5, Folder 8, CIA

ARC (S).

45. DCI, Memorandum to the Directorof Intelligence, "Letter-AGAO-S-D-M 40 TS (23 Oct 46), Subject: Sup-plies and Equipment for the CIG,"30 July 1948, DCI Records, Job C.

Box 13, Folder 549, CIA,ARC (C).

46. DCI, Memorandum to Chamberlin,31 -Aueust 1948, DCI Records, Job

Box 13, Folder 549,CIA ARC (C). Another copy of thismemorandum also appears in DORecords, Job E Box 5,Folder 8, CIA ARC (S). See alsoCable, C. D, to SO, IN 494,92, 4August 1948, DO Records, Job C.

Box 5, Folder 8, CIA ARC:(S).

47. Headquarters told its officers in Ger-many to refrain from forwardinginformation about RUSTY to Armyofficials there because the Armyapparently regarded the news as "snip-ing." See Cable, SO to Heidelberg,OUT 58734, 13 February 1948, (S):and Stewartto Helms, "RUSTY," 17Pebruaiy 1948, MGH-A-4058, (S),both in DO Records, Job ; C

Box 5, Folder 8, CIA ARC.(S)

48. For the agenda of the meetingbetween the Army, Air Force, andGehlen and a list of priorities, see"Minutes of Meeting," 1 October1948, DO Records, Job C._ -7Box 2, Folder 3, CIA ARC (S).

49. Chief of station, Karlsruhe to Chief,FBM, "RUSTY," 15 October 1948.MGK-A-3583, DO Records, Job

Box 5, Folder 9, CIA ARC(S).

50. Cable, SO to Karlsruhe, 27 October1948, OUT 70606, in DO Records,Job C. -2 Box 5, Folder 9,CIA ARC (S). Richard Helms alsoprovided some guidance for thisinvestigation in Chief, FBM to chiefof station, Karlsruhe, "RUSTY," 2November 1948, MGK-W-914, DORecords, Job C.- Box 5,Folder 8, CIA ARC (S).

51. Cable, Karlsruhe to SO, 17 Decem-ber 1948, IN 19522, (S), in DORecords, Job c_ Box 5,Folder 9, CIA ARC (S).

52. Chief of station, Karlsruhe to Chief,OSO, "Report of Investigation-

RUSTY," 17 December 1948,MGM-A-878, MGTS-11, DORecords, Job C.. Box 3,Folder 4, CIA ARC (TS) (hereaftercited as "The Cricchfield Report") (S)

53. Ibid., p. 10 of the "Basic Report" in"The Critchfield Report." (S)

54. Ibid

55. Richard Helms, Memorandum forthe Files, 1 February 1949, DORecords, Job C. Box 5,Folder 9, CIA ARC (S). Colonel Cal-loway made his recommendationsconcerning RUSTY in Galloway toDCI, "Recommendations in ReOperation RUSTY," 21 December1948, Job r_. Box 2, Folder20, CIA ARC (S). The DCI con-curred and submitted CIA's proposedtakeover in Hillkoetter to Maj.Gen. William E. Hall, "OperationRUSTY," 22 December 1948, TS- •27098A, DO Records, job

Box 13, Folder 549, CIAARC (C).

56. For a variety of correspondence dur-ing this delicate transition period, seeS. Leroy Irwin, Director of Intelli-gence to DCI, "Operation 'Rusty,"19 January 1949, SD-13884; Cable,SO to Karlsruhe, 9 February 1949.OUT 75997;Executive Officer to Chief of Opera-tions and Chief, FBM, "ODEUM,"1 April 1949; Cable, SO toKarlsruhe, 16 May 1949, OUT81439; all of these documents (withthe exception of the C 7memo)are located in DO Records, Job

M Box 5, Folder 9, CIA ARC.(S). -3 memo is found inDO Records, Job Box 2,Folder 6, CIA ARC (C).

57. Chief, FBM to chief of station,Karlsruhe, "Operational, 10 February1949, MGK-W-1361, enclosing AlanR. McCracken, Acting ADSO toMaj. Gen. S. Leroy Irwin, Directorof Intelligence, "Operation Rusty,"9 February 1949, in DO Records,Job C... Box 5, Folder 9,

Secret 83

annual expense for over $5 million tosupport the German intelligence ser-vice. Between 1950 and 1968, CIAspent $29 million on Gehlen's organi-zation and US liaison operations.CIA received some funding supportfrom the Army while RUSTY, in the .early days, increased its revenuethrough black market activities. TheAgency never had full access to theidentities of Gehlen agents, forcingthe Agency to employ clandestinemeans to identify German intelli-gence personnel. See CSHPVol. II, pp. XI-12 through XI-21 andXVII-1 through XVII-10. (S)

65. For further details, see CSHP- C _7Vol. II!, pp. )0C-1 through )X-80.See also "KGB Exploitation of HeinzFelfe: Successful KGB Penetration ofa Western Intelligence Service,"March 1969 (S) in Heinz Felfe, File

DO Records. (S)

66. Targeting of West Germany by theEast German intelligence service forits Nazi links is found in MarkusWolf with Anne McElvoy, ManWithout a Face: The Autobiography ofCommunism's Greatest Spymaster(New York: Times Books 1997). (U)

■Irt".

SecretGehlen

CIA ARC (S). For further informa-tion on the hostile environment atPullach, see chief of station,Karlsruhe to Chief, FBM, "Letter toGeneral Hall," 10 February 1949,MGM-A-961, and chief of station,Karlsruhe to Chief, FBM,"ODEUM: Current Situation," 18April 1949, MGM-A-1094; both inDO Records, Job C.. —= Box 5,Folder 9, CIA ARC (S).

58. Shortly after CIA cook over RUSTYfrom the Army, the Office of the USHigh Commission for Germany(HICOM) assumed control from theOffice of the Military Governmentfor Germany United States(OMGUS) and the Occupation Stat-ute went into effect. In September1949, the Federal Government ofGermany formed following the ratifi-cation of the Basic Law, the newrepublic's constitution in May. In thespring of 1952, Germany and theWestern Allies replaced the Occupa-tion Statute with ContractualAgreements. Three years later, WestGermany became a sovereign nationand joined the North Atlantic TreatyOrganization (NATO). Severalmonths later, West Germanyreformed its military forces and theGehlen Organization became Ger-many's official intelligence service inFebruary 1956. (U)

• .

59. Chief of station, Karlsruhe to Chief,FBM, "Basic Agreement withODELTM," 13 June 1949, MGL-A-8, DO Records, Job C. Box5. Folder 9, CIA ARC (S).

60. Aid

61. CIA dropped the use of the termRUSTY in 1949, and used a newoperational code, ODEUM, through1950 when it changed to ZIPPER.Following the establishment of theBND in 1956, the Agency referred toGehlen's group as UPHILL andUPSWING. Between 1957 and1968, the Agency referred to the Ger-man service as HBLAURITE. CIA'sPullach base stopped using theArmy's cover as the 7821st Compos-ite Group and became known asSpecial Detachment, EUCOM, orthe 7878th Signal Detachment. Thislater changed to Special Detachment,US Army Europe, and then to theUS Army Technical CoordinatingAqivity. See CSHP C Vol. II,XVII-10 and Vol. III, pp. X-20. (C)

62. See CSHP C. ..1 Vol. II, pp. XI-2through XI-7. For more completedetails of the conflict between CIAand Gehlen, see "Gehlen History."(S)

63. Wisner, Memorandum to DCI,"Communications from Under Secre-tary of Defense dated 4 Decemberand Relating to (a) Military Coverfor CIA Operations; and (b) Deficien-cies in Intelligence Collection andDissemination," 12 December 1953,TS 92318, DO Records, Job C.

'n Box 13, Folder 16, CIAARC (C).

64. CIA initially provided Gehlen with$125,000 per month in 1949 to runhis operations. By 1955, CIA had an

84 Secret