Like Melville, Kell continued to believe that German espionage was linked to German invasion plans. In his second progress report, in October 1910, he envisaged the possibility (never apparently implemented) of ‘the earmarking (and training??) of our own spies in the Coast Counties, to act behind the enemy’s lines in case of invasion’.34 At the first annual review of the Bureau’s work, held in the War Office on 15 November, it was agreed to ask the Foreign Office for the funding for Kell to employ an assistant at a salary of £400 per annum (in addition, it was expected, to an army pension).35 Kell had already earmarked Stanley Clarke, who formally began work on 1 January 1911.36 One of Clarke’s first tasks was to help Kell move from his Victoria Street office to larger (and less expensive) chambers at 3 Paper Buildings in the Temple, where they had to make their own arrangement for water and electricity supply. Soon after the move (complicated by three-weeks’ sick leave by Kell) was complete on 20 February, Clarke embarked on a three-week walking tour of the Essex and Suffolk coast,37 presumably in a vain attempt to find intelligence leads on espionage related to (non-existent) German invasion plans.
Having investigated a series of leads which, save for the somewhat farcical Helm case, had so far yielded no solid evidence of German espionage, Kell was by now rightly concerned about the low quality of the intelligence reaching him. On 3 March he had ‘a long interview with M[elville] at his office and impressed upon him the necessity of being more energetic in the future’: ‘I expected him to think out new schemes for getting hold of intelligence.’38 In his third report Kell wrote that, though the quality of Melville’s work and his tact when making inquiries had been excellent, ‘The work that he has done for me during the last eighteen months has not been of an arduous nature, and is nothing compared to the comprehensive work he was originally intended for when he was first employed.’ Because of his age (Melville was now in his sixties)39 and seniority, he could ‘hardly be expected to perform such work as the shadowing by night and day, a duty which in any case is quite impossible for one man alone’.
Hitherto I have had to depend, to a great extent, on such assistance in detective work as the Metropolitan and County Police have been able to afford me, but the County Police in particular have very few plain-clothes men at their disposal, and moreover some of the Chief Constables themselves have acknowledged that however excellent their men’s work may be as regards crime, they have not got all the necessary degree of tact to carry out such delicate enquiries . . .
Mr Melville has on occasions been able to enlist the services of one or two ex-police officers of his acquaintance, but who naturally were not always available when their services were required. Moreover the system of employing odd men for our kind of work is obviously undesirable, besides being very costly. It is very difficult to get private detectives to work for less than a guinea a day, plus all out-of-pocket expenses. I therefore beg to request that sanction may be given for me to engage the services of two detectives.40
A former Met policeman, John Regan, joined Kell’s Bureau as assistant to Melville on 7 June, but Kell had to wait over a year for the second detective he had asked for.41 He did, however, obtain funding for a ‘marine assistant’, Lieutenant (later Commander) B. J. Ohlson RNR,42 who began work on 19 May with responsibility for ‘the collection of information in ports along the East Coast’, beginning in the Port of London.43 Over the next month Ohlson enlisted the support of skippers of six merchant vessels plying between London and the continent who, Kell reported, ‘are discreet and willing to keep their eyes open and report any useful information that comes to their notice’.44
In August 1911, Stanley Clarke had a remarkable stroke of luck which transformed Kell’s investigations of the Nachrichten-Abteilung’s British operations. Clarke found himself in the same railway carriage as Francis Holstein, the German-born proprietor of the Peacock Hotel, Trinity, Leith, who was discussing with a friend a letter he had just received from Germany asking for information about British public opinion and preparations for war. Further inquiries revealed that Holstein had received two similar letters in the previous year, both signed, like the latest one, ‘F. Reimers, Brauerstrasse, Potsdam’. ‘Reimers’ was discovered to be an alias used by Gustav Steinhauer.45 Extraordinary though the coincidence of the overheard conversation may appear, Steinhauer’s insecure habit of sending unsolicited letters requesting information from Germans resident in Britain46 meant that it was only a matter of time before one of the letters was revealed by its recipient. On a number of occasions German agents in Britain complained about the danger that they might be exposed to as a result of poor security, but Steinhauer brushed their complaints aside.47 The German naval attaché in London reported to the DNI in Berlin in 1912 that recruiting Germans living in Britain as agents was ‘much more complicated than imagined in Berlin’: ‘The Germans of middle age (only gentlemen between the age of 35 and 50 are suitable, as the younger gentlemen do not have steady jobs and change their employer far too often and without prior notice) loathe this kind of work more and more, it being hostile to England.’48 Like Holstein, a majority of those who received Steinhauer’s letters had no intention of responding to his ill-conceived intelligence cold-calling.
Churchill added a major weapon to Kell’s armoury by greatly simplifying the interception of suspects’ correspondence. Hitherto individual warrants signed by the Home Secretary had been required for every letter opened.
The Post Office had always held that it was very undesirable to shake public confidence in the security of the post. The Secretary to the Post Office had even argued in a paper submitted to the . . . Subcommittee on Foreign Espionage in 1909 that it appeared very doubtful whether any useful results would follow from the examination of correspondence in the case of spies as it was improbable that any letters of importance would be received or despatched by a spy without the use of devices for concealment.49
Had the Post Office view prevailed, Kell would have been deprived of what soon became his main counter-espionage tool. Churchill, however, overrode it, greatly extending the Home Office Warrant (HOW) system and introducing the signing of ‘general warrants authorising the examination of all the correspondence of particular people upon a list to which additions were continually being made’. He was greatly impressed by the evidence of German espionage which resulted from the warrants which he signed. After clearing his desk at the Home Office in November 1911 on becoming first lord of the Admiralty, he wrote to the Foreign Secretary, Sir Edward Grey:
Capt Kell of the War Office secret service has given me the enclosed bundle of reports, which resulted from the action taken by him in conjunction with Chief Constables during my tenure at the Home Office. Although there is a lot of ‘stuff’ mixed up with them, they are well worth looking through because they show that we are the subject of a minute and scientific study by the German military and naval authorities, and that no other nation in the world pays us such attention. Will you show them to Lloyd George [Chancellor of the Exchequer] when he dines with you tomorrow night? I should add that Kell is thoroughly trustworthy and competent, and that of course the names and addresses of almost all the persons referred to are known. The information is of course secret. A good deal more is known through the warrants I signed as Home Secretary for the inspection of correspondence.50
Beginning in September 1911, Kell kept a carefully compiled, crossreferenced index of the intercepted letters between Steinhauer and his agents in Britain. An in-house MI5 history written in 1921 noted that though the original letters had been destroyed, a surviving index to them contained 1,189 entries for the period from 1911 to 1914. During the three years before the outbreak of war, Kell’s Bureau thus received, on average, more than one intercepted letter a day from Steinhauer and his British network.51 Among the most important early discoveries from the intercepts was Steinhauer’s insecure use of intermediaries for communications with his agents. By obtaining HOWs on the intermediaries (‘postmen’), Kell was thus able to
penetrate much of the network. Probably the most active ‘postman’ was Karl Ernst, who owned a barber’s shop near Pentonville Prison and regularly cut the hair of the chaplain and prison officers.52 As well as handling correspondence, Ernst was also used intermittently by Steinhauer to approach disgruntled seamen who, it was hoped, might be persuaded to provide information on the Royal Navy. Some of his other inquiries were more humdrum. Ernst was asked to obtain a Daily Express article on Steinhauer entitled ‘German Spy Bureau. Chief Organizer and How He Works. A Man of Mystery. Victims Made to Order’.53 On at least one occasion intelligence from the ‘letter checks’ almost led to Steinhauer’s capture. In December 1911 intercepted correspondence revealed that a German officer was travelling through Britain. By the time sufficient evidence had been assembled to justify his arrest, however, he had left the country. Another intercepted letter in February 1912 revealed that the itinerant officer had been Steinhauer himself.54
The first case investigated by Kell of a spy working for Steinhauer which led to prosecution was that of Dr Max Schultz, the first doctor of philosophy ever to be jailed for espionage in Britain. Despite convictions in Germany for embezzlement, he was used by ‘N’ to gather intelligence on the Royal Navy at Portsmouth. The flamboyant Schultz had little notion of undercover operations, setting himself up on a houseboat in Portsmouth, flying the German flag from the stern and throwing parties at which he attempted (unsuccessfully) to turn the conversation to naval matters. Though he quickly aroused suspicion, he acquired no useful information. On one occasion, while engaged in gun practice, he shot his housekeeper, Miss Sturgeon, in the arm. When Miss Sturgeon sued for damages, Schultz consulted a local solicitor, Hugh Duff, whom he also asked to collect military and naval information for a ‘German newspaper’. Duff and one of his friends, Edward Tarren, agreed to do so but secretly informed the police. Kell then took charge of the case and provided bogus information for Duff and Tarren to supply to Schultz. By 17 August there was enough evidence for a warrant to be issued for Schultz’s arrest. The proceedings during Schultz’s trial were, at times, a match for his own personal eccentricity. He was tried in the name of Dr Phil Max Schultz, the authorities failing to realize that ‘Phil’ on statements signed by Schultz referred not to a given name but to his doctorate of philosophy. Lord Chief Justice Alverstone told Schultz before sentencing him to twenty-one months in jail that it was ‘a sad thing to think that you, a man of education, should be capable of coming over here posing as a gentleman’, attempting to obtain improper information: ‘I am thankful to know that the relations between the two countries are most friendly and amicable, and no one would repudiate and condemn the practices of which you have been guilty more strongly than all the leading men in Germany.’55
While the case against Schultz was proceeding, the law was being changed. The 1889 Official Secrets Act had been condemned as inadequate by the 1909 espionage sub-committee, by Kell in his progress reports, and by the Committee of Imperial Defence. The Helm case lent further weight to their arguments. The magistrates’ court had thrown out the charge of felony alleging intention to communicate ‘certain sketches and plans . . . to a foreign State – to wit the Empire of Germany’ and committed Helm for trial only on a lesser charge. Under the 1889 Act it was necessary to prove intent to obtain information illegally. This, claimed Viscount Haldane, at the House of Lords’ second reading of a new Official Secrets Bill in July 1911, created intolerable problems in preventing espionage: ‘Not many months ago we found in the middle of the fortifications at Dover an intelligent stranger, who explained his presence by saying that he was there to hear the singing of the birds. He gave the explanation rather hastily, because it was mid-winter.’56
The new Bill making it illegal to obtain or communicate any information useful to an enemy as well as to approach or enter a ‘prohibited place’ ‘for any purpose prejudicial to the safety or interests of the State’ placed the onus on the accused to show that his actions were innocently intended. The Bill was introduced in the Commons, after passing all its stages in the Lords, on 17 August. Placing the onus of proof on the accused was not entirely without legal precedent; it applied in a roughly similar way to the crime of ‘loitering with intent’ under the 1871 Prevention of Crimes Act.57 But the Attorney General, Sir Rufus Isaacs, was stretching a point when he assured the Commons on 18 August that, by comparison with the 1889 Official Secrets Act, ‘there is nothing novel in the principle of the Bill which the House is being asked to accept now.’ The Liberal MP Sir Alpheus Morton immediately retorted: ‘It upsets Magna Carta altogether.’ None the less Colonel ‘Jack’ Seely, the Under Secretary for War, was able to exploit the sense of urgency created by the fear in the summer of 1911 that a crisis caused by German gunboat diplomacy (the sending of the SMS Panther to the Moroccan port of Agadir) might erupt into European war. He succeeded in pushing the Bill through all its Commons stages in the scarcely precedented space of less than an hour.58 Kell noted in his next progress report that the new Act ‘greatly facilitated’ his work.59
The first German agent prosecuted after the passing of the 1911 Official Secrets Act was Heinrich Grosse, who was successfully convicted at the Winchester Assizes in February 1912. Like Schultz, Grosse had a criminal background which failed to deter the Nachrichten-Abteilung from recruiting him. Indeed his past ingenuity as a criminal may actually have been seen as a positive indication of his aptitude for espionage. He was sent to Portsmouth to inquire into local naval fortifications, submarines, guns and mine-laying cruisers. Posing as a modern languages teacher and using the name ‘Captain Hugh Grant’, Grosse employed a naval pensioner, William Salter, to make inquiries into the coal stocks in Portsmouth. Salter immediately told the dockyard police, who in turn informed Kell. Though Grosse was an indifferent spy, Kell dealt with the case efficiently. A letter check, as well as revealing details of Grosse’s espionage, also identified two of the intermediaries employed by Steinhauer to maintain contact with agents in Britain. Building on his experience of supplying bogus information to Duff during the Schultz case, Kell supplied more elaborate disinformation to Salter which Grosse passed on to Berlin. Grosse’s case officer was sufficiently pleased with the disinformation to forward a more detailed list of inquiries on wireless telegraphy, range-finding, naval guns and coal supplies. Grosse was, however, told that his report about ‘a floating conning-tower’ (apparently one of Kell’s less plausible inventions) was ‘surely imaginary’. This, like the remainder of Grosse’s correspondence, was duly intercepted. Finally, Kell ordered a police raid on Grosse’s lodgings to obtain the incriminating evidence required for a successful prosecution. While in prison, Grosse received one further letter (also intercepted) from a representative of the Nachrichten-Abteilung, promising him ‘a sum of money’ which could be used either for his defence or to assist him on his release, with the implication that the latter might be the more prudent course. The judge at Grosse’s trial, Mr (later Lord) Justice Darling, who tried a number of official secrets cases, found several opportunities amid the bizarre evidence produced in court for displays of his celebrated judicial wit, each greeted by sycophantic courtroom laughter. Like Lord Chief Justice Alverstone in the Schultz trial, Darling disliked the whole idea of intelligence-gathering. He concluded, when sentencing Grosse to three years’ penal servitude: ‘We desire to live on terms of amity with every neighbouring nation and the practice of spying can but tend to inflame hostile feelings . . . Spying upon one another gives rise to such ill-feeling that if it could be stamped out it should be.’60
The next German spy brought to trial, Armgaard Karl Graves, displayed once again the Nachrichten-Abteilung’s penchant for recruiting criminals whose operational skills could, it believed, be adapted to intelligencegathering. Like Schultz and Grosse, Graves was an adventurer who drifted into espionage. Unlike his predecessors, however, he was a successful confidence trickster who added both ‘N’ and MO5(g) to his list of victims. Steinhauer later claimed (though there
is no corroboration for the claim) that Graves was never ‘his spy’, but had been employed against his recommendations by his superiors at the German Admiralty. In 1911, having returned to Germany after a period in Australia, Graves persuaded the Nachrichten-Abteilung to finance a Scottish intelligence mission. Following his arrival in Scotland in early 1912, he set himself up as a locum doctor in Leith on bogus Australian qualifications. The fact that Graves was a fantasist as well as a confidence trickster makes it difficult to assess his own highly coloured account of his operations in Scotland. He later claimed that, having discovered he had aroused suspicion, he decided to try ‘a right royal bluff’ by calling at Glasgow police headquarters and demanding to see the Chief Constable:
Presently I was shown into the chief’s room, and was received by a typical Scottish gentleman. I opened fire in this way: ‘Have you any reason to believe that I am a German spy?’
I saw that it had knocked him off his pins.
‘Why, no,’ he said, startled, ‘I don’t know anything about it at all.’
‘It’s not by your orders then that I am followed?’
‘Certainly not,’ he replied.61
If Graves was not already under surveillance, it was not long before he was. Kell’s Bureau had identified him as a spy through the interception of his correspondence, and Kell moved to Glasgow to take personal charge of the investigation. Graves was arrested at Kell’s request on 14 April after intercepts indicated he might be about to return to Germany.62
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