Enemies: A History of the FBI (16 page)

The Third Reich sold specially denominated German marks—
Rueckwanderer
or “returnee” marks—in exchange for American dollars. To open a
Rueckwanderer
account, a German resident in the United States went to a German consulate, swore allegiance to the Third Reich, and stated his intent to return to the fatherland. He transferred American dollars to the Reich and thus invested in Germany victory.

Four banking companies in the United States handled the lucrative
Rueckwanderer
exchange. The best known was Chase National. The least known was Robert C. Mayer & Co., led by
August T. Gausebeck, a resident alien and a member of the Nazi Party.

Hoover said Gausebeck was laundering money, sending tens of thousands of dollars in untraceable $5 and $10 bills to Father Charles Coughlin, the notorious right-wing radio preacher who railed against Roosevelt and the “Jew Deal,” rallied an armed militia movement called the Christian Front, and prayed for the triumph of fascism over communism. Coughlin was one of FDR’s strongest political foes, along with the world-famous aviator Charles Lindbergh, a potential Republican candidate for president in 1940. There was more: Hoover reported that Gausebeck planned to mail $500,000 in small bills to the Republican presidential campaign committee.

In short, said Hoover, German intelligence officers had a network of money and information that ran through the American banking system. Nazi gold was flowing to FDR’s political enemies in the United States.

And the FBI had no way of wiretapping them.

“I spoke to J. Edgar Hoover and asked him whether he was able to listen in on spies by tapping the wires and he said no; that the order given him by Bob Jackson stopping him had not been revoked,” Morgenthau wrote in his meticulous daily diary, preserved in the FDR presidential library, on May 20, 1940. “I said I would go to work at once. He said he needed it desperately.”

Morgenthau immediately rang Edwin Watson, the president’s personal secretary. “I called up General Watson and said this should be done and he said, ‘I don’t think it is legal.’ ”

“What if it is illegal?” Morgenthau replied—meaning
who cares if it is illegal
?

Watson called back in five minutes: “He said he told the President and the President said, ’Tell Bob Jackson to send for J. Edgar Hoover and order him to do it and a written memorandum will follow.”

The president wrote a secret note to Attorney General Jackson the very next day. It said, in so many words, to hell with the Supreme Court.

The
Nardone
decision was “
undoubtedly sound,” FDR began. “Under ordinary and normal circumstances wire-tapping by Government agents should not be carried on for the excellent reason that it is almost bound to lead to abuse of civil rights.” But these were extraordinary times. “I am convinced,” Roosevelt wrote, “that the Supreme Court never intended [its decision] to apply to grave matters involving the defense of the nation.”

“It is, of course, well known that certain other nations have been engaged … in preparation for sabotage, as well as in actual sabotage,” the president said. “It is too late to do anything about it after sabotage, assassinations, and ‘fifth column’ activities are completed.”

The president said he authorized the FBI to use “listening devices” against “persons suspected of subversive activities against the Government of the United States, including suspected spies.” The order was signed and initialed “FDR.” It stood for the next quarter of a century.

In those years, the FBI installed
at least 6,769 warrantless wiretaps and 1,806 bugs in the name of national security. These figures are almost surely understated, since some taps, bugs, and break-ins went unreported in order to protect the secrecy of the operations, according to Justice Department records that survived the passing years and the changing politics of the era.

With Roosevelt’s blessing, Hoover now wiretapped at will. Wiretapping remained illegal. Nothing in the president’s order made it lawful. Roosevelt had made the FBI a presidential intelligence service. Hoover had wrested a great authority from the Justice Department.

And he had learned to juggle as well as the president did.

The attorney general fought back. “
The Federal Bureau of Investigation is the subject of frequent attack as a Gestapo,” Jackson wrote in a secret memo that circulated at Justice. “These attacks, if believed by a large number of people, are disastrous to its work and its standing in court when we seek convictions.” He wanted the FBI to hew to the law: the straight and narrow course of investigating crimes against the United States.

But Hoover won this battle as well. He responded by schooling the attorney general on “
the difference between ‘investigative’ activity and ‘intelligence’
activity.” The FBI’s intelligence work was not aimed at indicting criminals after they committed crimes. It was intended to stop spies and saboteurs before they struck. “It is imperative, if the internal security of this country is to be maintained, that the FBI be in a position to have in its files information concerning the activities of individuals and organizations of a subversive character,” Hoover insisted. When the FBI did intelligence operations, it was not working for the attorney general and the Justice Department. It was working for the president of the United States. The confrontation was a turning point.

Over the next two decades, Hoover told attorneys general what he was doing if and when he wanted. He made it impossible for Jackson and many of his successors at Justice to exercise their lawful authority over the FBI.

Hoover was operating outside the law, and he knew it. Wiretap evidence was useless in court; any judge would dismiss a case based on illegal government conduct.

But wiretapping worked. It was one of the most powerful tools the FBI possessed to gather intelligence. Its power was unchecked once it was unleashed. One tap could open a window into a world of secrets. And Hoover now ruled that realm.

“T
HE
P
RESIDENT THOUGHT YOU MIGHT LIKE TO LOOK THEM OVER
”

The relationship between Roosevelt and Hoover had been cordial but correct. It was deepened now by the sharing of secrets.

On May 21, 1940, the same day that FDR issued his wiretap order, he also gave Hoover copies of telegrams sent to the White House in support of the anti-intervention policies of Charles Lindbergh. (“I am absolutely convinced that Lindbergh is a Nazi,” FDR had told Treasury Secretary Henry Morgenthau the day before.) A note from FDR’s secretary atop the sheaf of telegrams said: “
The President thought you might like to look them over noting the names and addresses of the senders.”

For the next five years, Hoover sent FDR a steady stream of political intelligence and innuendo about people who opposed the president’s policies. The targets of the FBI’s surveillance included Lindbergh; the America First coalition of conservatives, anti-Communists, and pro-Hitler reactionaries; three United States senators whom Hoover suspected of German
sympathies, including his old enemy from the 1920s, Burton Wheeler of Montana; FDR’s hometown congressman, the Red-baiting Hamilton Fish; and hundreds more who simply hated Roosevelt and everything for which he stood.

When the president was irritated by an America First pamphlet opposing his policy of lending ships to Britain, he ordered an aide to “find out from someone—perhaps FBI—who is paying for this?” Hoover proceeded to investigate not simply the source of the pamphlet but the entire financial structure of America First. He eventually was able to inform the president that America First received substantial and secret support from two of the nation’s most powerful newspaper publishers: Joseph Medill Patterson of the New York
Daily News
and Robert R. McCormick of the
Chicago Tribune
. Hoover also implied that America First might have received secret funds from foreign fascists. All of this provoked the president to order the Justice Department to open a federal grand jury investigation of America First. A wiretap on one prominent America First leader, Lindbergh’s fellow aviator Laura Ingalls, led to her indictment and conviction as a paid agent of influence for the German government.

On June 14, 1940, FDR sent Hoover a thank-you note “for the many interesting and valuable reports that you have made to me regarding the last few months.” Hoover kept it all his life. Three months later he let the White House know that he was listening in on “
all telephone conversations into and out of the following embassies: German, Italian, French, Russian, and Japanese,” and conducting a wide range of intelligence investigations against the espionage agents of the Axis.

Hoover now was the president’s intelligence chief.

11

SECRET INTELLIGENCE

A
MERICA’S WAR AGAINST
Germany went worldwide a year and a half before Pearl Harbor. The FBI became America’s first real foreign intelligence service. Many of its battles stayed secret through the end of the century.

The FBI’s attack against Nazi spies began in May 1940 with a Morse code message, sent by shortwave radio from a wood-frame bungalow on the beach in Centerport, New York, a little town on Long Island. It vaulted over the Atlantic Ocean and landed in the Hamburg office of the Abwehr, the German military intelligence service.

The Abwehr responded with a steady stream of commands for secret intelligence from German agents in America. The Abwehr wanted reports on American military readiness, troop training, aircraft production, deliveries of warplanes to Britain, the construction of aircraft carriers, chemical-warfare manuals, machine tool factories, bombsights, and the movements of ships at sea. It radioed instructions to a ring of thirty-three agents. Some worked for companies like Westinghouse Electric, Ford, and Chrysler; others served on ships that plied the Atlantic.

The Abwehr thought the radioman receiving its orders at the Long Island bungalow and reporting reams of intelligence back to Hamburg was a forty-year-old naturalized American citizen, William Sebold.

But the FBI, not Sebold, was at the controls.

Sebold was a German army veteran of World War I, a drifting merchant seaman and aircraft mechanic who had lived and worked in New York and San Diego, and then returned to Germany at the start of 1939. Armed with a new American passport, orders from the Abwehr, and $500 in cash, he had been sent back to New York. He delivered himself to the FBI on February 8, 1940, after disembarking at the end of a trip from Italy on the SS
Washington
. He said that upon his return to Germany he had been coerced by German intelligence, which had shanghaied him into a spy school in Hamburg, where he had been trained in code making and secret communications.

FBI agents watched as Sebold took off his wristwatch, opened the back, and withdrew five tiny photographs. Read under a microscope, the documents contained the Abwehr’s demands for information on American military secrets including antiaircraft gunnery, chemical warfare, and troop movements.

The Abwehr had ordered Sebold to contact a man named Herman Lang and construct a clandestine shortwave radio base to communicate with German intelligence in Hamburg. The identification of Lang convinced the FBI beyond all doubt: he was an inspector at the factory that made the Norden bombsight, one of the closely guarded secrets of American military technology.

Hoover sent this startling information to President Roosevelt on February 12, 1940, four days after Sebold arrived in New York.

The question for the FBI was how to use Sebold to double-cross the Germans and roll up their spy network in the United States. Hoover and his men had no experience in the use of double agents. A successful double-agent operation is a con game, based on deception. Sebold had to look like he was working for the Abwehr while he was working for the FBI.

The radio was the key. When the clandestine station at Centerport went on the air, on May 19, 1940, an FBI agent named Morris Price was at the controls, not Sebold.

Over thirteen months Price would transmit 302 messages to the Abwehr and receive 167 replies. Coordinating with army and navy intelligence, the FBI sent information, misinformation, and disinformation to Germany. The Abwehr replied with a steady list of orders for its agents and demands for information. Hoover reported regularly to the White House on what the Germans wanted from their spies in the United States—chiefly information on America’s war potential and its shipments of military materiel to En gland.

The Abwehr’s officers played into America’s hands. They radioed orders to Sebold to open a bank account in New York and to serve as a paymaster for the spy ring. This gave him control over the ring’s operations and ready access to its thirty-three agents.

The FBI set up a sting operation built around a dummy company, wiretaps,
and hidden cameras—financed in part by the unwitting Abwehr and underwritten by President Roosevelt’s close friend Vincent Astor.