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  In war, spies are indispensable auxiliaries and we must discard all question of morality. We must overcome such feelings of repugnance for such an unchivalrous measure because it is imposed on us by sheer necessity.4

  This had been understood at the highest level during the Boer War, and a large amount of money and up to 132 specialist officers put at the disposal of military intelligence, pro tem. But money and men were not enough: the military culture was all wrong. Very few of these new appointees knew Afrikaans or any African language and they tended to be inappropriately complacent about their own cleverness.5 And the old amateurism persisted in men like the young Robert Baden-Powell who ‘treated spying rather like cricket, as a game for the gentleman amateur’.6

  Another major problem was lack of co-ordination. Threats to British interests all over the world were perceived and dealt with by a variety of agencies who might employ anyone, from envoys in the palaces of Constantinople to officers braving bullets on the veldt and plain-clothes men lurking at British ports.

  Despite the belief that vast imperial interests were at stake there was no attempt to form a unitary intelligence service nor, more importantly, to establish a permanent relationship between intelligence and operations, or intelligence and policy. The Foreign Office, the army on the ground, the War Office in London, the Indian Government, the India Office and various Empire political services all operated more or less independently…7

  Military intelligence in London around the turn of the century was focussed to an old-fashioned degree on a perceived threat from the Franco-Russian alliance. Sir John Ardagh of the Military Intelligence Department believed the French were grooming Irish elements to support an uprising which would take place should the French confront the British in war. In fact a complex web of treaties and alliances had been forming, breaking apart and re-forming for years, and only the British remained in ‘splendid isolation’. Every country ostensibly at peace was busy developing industrial strength and tactical resources in case of war. The Russians (who had concluded a treaty with the Austrians that preserved them from trouble in the Balkans) looked more covetously than ever on Persia and India and were stringing the Trans-Siberian railway right across Asia. The Germans were building a railway from Mesopotamia to Turkey. The American, Japanese and German navies were getting bigger and better, the Germans had implemented the Schlieffen Plan which would preserve them from attack in the west if they decided to make a move on Russia, and most of these newly industrialised nations were jostling for power and territory. The others were catching up. Britain’s position at the top of the heap was not half so impregnable as it had been fifty years before.

  When great wads of War Office money were sunk into a scheme to set up a coal supply network as the means of gaining intelligence about the French navy, somebody on high decided to pull the plug and there ensued a reorganisation.8

  It was one of many reshuffles and renamings which took place in the twelve years between the end of the Boer War and the start of the Great War. The Committee for Imperial Defence, led by A.J. Balfour, sat from 1903 with the aim of co-ordinating policy and practice between the Admiralty, the War Office and the Foreign Office. At the War Office, the first changes were dictated by a committee led by Lord Esher.

  A new Directorate of Military Operations was instituted, and two of its divisions, MO2 (operations abroad) and MO3 (counter-insurgency) were specifically entrusted with intelligence gathering. During the South African conflict Colonel James Trotter had run Section 13, which included a three-man team devoted entirely to ‘watching shipments of ammunition and messages from the continent [to the Boers] and for carrying out enquiries referred from South Africa’.9 Trotter strongly believed in maintaining a peacetime intelligence system (which insofar as it existed had traditionally been paid for by the Foreign Office).10 So now that MO2 and MO3 were in place, Trotter and his brother officers would do the analysis – but they needed at least one excellent field operative; somebody who could respond to the demands of counter-espionage in England while acting as case officer for agents abroad. He must have a solid background in this kind of work and be prepared to commit himself for a long time, for in Trotter’s recent experience

  Before the war money had been wasted on persons who made sham offers of information, and in other ways, owing to want of… a record of [their] previous history; if the section was made permanent such occurrences would be avoided in future.11

  Should spies be discovered at home, they might have to be arrested and tried. As only the police could make arrests, the man concerned must also carry the authority and credibility to get swift action from the very top at Scotland Yard. ‘I think Superintendent Melville would be a good man, and that I had better write to Henry about him’, noted Sir Thomas Sanderson after a meeting with Trotter in September. Lord Lansdowne asked him first to consult Sir Edward Bradford, the former Commissioner, ‘whose opinion was favourable’.12 Sanderson’s letter to Sir Edward Henry was duly sent, and Henry (who had received a memo about a man for this new post from Trotter as early as 19 May) wrote back

  I hope to be back on 12th October and will then arrange about Melville. He is shrewd and resourceful and altho’ he has a tendency towards adventuring he can keep this in check when it suits his interests to do so.

  For the purpose for which he is needed, to be an intermediary, no better person could be secured – probably no one nearly so good for the money. The Intelligence Department will make it clear to him that he must work to orders and must abstain from taking a line of his own.

  We must arrange that he sever his connection with Scotland Yard as quickly as possible. His utility to the WO would be much lessened if it became known that he had taken service with them.13

  In the course of his holiday in October, Melville received a mysterious communication from Colonel Trotter, whom he visited at once upon his return to London; and Colonel Trotter offered him the job.

  Melville was in no rush to leave the Metropolitan force, but he had nothing left to prove and already qualified for the full retirement pension. More importantly, in the course of his work he had outgrown the view that a few anarchists were the greatest present threat to British imperial power. He had spent time with people at court and in the higher echelons of Government and understood that matters of international business and politics were subject to forces far more subtle and opaque than, as a policeman, he was used to handling. Here was a new challenge that would allow him to investigate complex and far-reaching events.

  His cautious response was that ‘if I got a suitable offer, I would consider it’.14 Reading between the lines, he could hardly wait to get started. Terms were quickly settled: he would receive £400, which with the £280 police pension would add up to a good living. But nobody must know that his retirement was prompted by anything other than a desire to spend more time in his Clapham garden.

  At this time bright officers were returning from active service in the Empire and sharpening the focus of War Office intelligence. Vernon Kell, a young man recently back from China after serving as ADC to a Chinese General during the Boxer Rebellion, was among those making his mark. He had been brought up speaking Polish and English. He spoke German, French, Russian and colloquial Chinese to interpreter standard and could read Italian.15 He would concentrate on information from Germany about war preparations there.

  Staff Captain Francis Davies had been a Commissioner of Police in South Africa during the Boer War and was now at MO3. Ex-Superintendent Melville would report directly to him. Among his first tasks would be the hiring of a reliable man to work in Europe. The modus operandi of this person, Henry Dale Long, is revealed in a letter from Melville to Captain Davies of 8 April 1904:

  I beg to inform you that Long left for Hamburg on 30th ult. But he had first to proceed to Brussels re obtaining some introductions if possible.

  I gave him full instructions how to act and of course many suggestions. Everything is to be done in a commercial way. To this en
d he will present attached card which explains itself. I received a telegram from him yesterday from Hamburg stating that his address is Hotel Glaesner, Neuer Jungfernstieg.

  He will do all possible to get in with some employés in the firms of Busch & Co and Gottlieb Goerner, both mentioned in précis of reports.

  This was accompanied by the business card of W. Morgan, General Agent, of Victoria Street London SW, inscribed ‘presented by H.D. Long’.

  Melville’s next preoccupation would be with events which were already unfolding in France, in which he foresaw a role for an old friend.

  Mr and Mrs Reilly had spent an interesting few years abroad. In the summer of 1900 Sidney left Margaret behind in St Petersburg and travelled to the Caspian, where he pursued business opportunities between Baku and Petrovsk in Kazakhstan.16 At this time the British Consul in Baku employed a useful agent who is likely to have been Reilly. Petrovsk, linked by railway to Baku, was also an important entrepôt along the trans-continental route now opening up between Moscow and Vladivostok. Reilly became aware of possibilities in the Far East.

  In September 1900, the couple crossed the Mediterranean from Constantinople, sailed down the Suez Canal and on via Colombo, Penang, Singapore and Hong Kong to Shanghai. Shanghai, at the time an exotic forcing-house of rumour, commercial opportunity and international crime, must have been the sort of place where Sidney Reilly felt at home; but after a few months he and Margaret moved on. There was money to be made in Port Arthur (today Lüshun). The city commands the entrance to the Gulf of Zhili, from which Beijing lies only a hundred miles inland. Port Arthur can be approached across the Yellow Sea. Korea lies roughly east of the Yellow Sea, the Chinese mainland to the west.

  The Chinese had leased Port Arthur to the Russians, but the Japanese, lying in wait beyond Korea, were determined to take it for themselves. Port Arthur, and the peninsula on which it stands, would give them access to Beijing and Manchuria. By 1901 the Foreign Office recognised that ‘unless Japan could find an ally against Russia, she might be driven to make a bargain with her instead’.17 The British were negotiating with the Germans but there were strong reservations on both sides. Talks collapsed and immediately afterwards, in January 1902, the Anglo-Japanese treaty came into force. They agreed strict neutrality should either go to war with another country, and assistance if the other party went to war with more than one.18

  The Japanese needed intelligence about Russian defences and Sidney Reilly needed money. It seems that a deal was struck that satisfied both parties. Reilly also made a good living working for, and with, a wealthy and astute entrepreneur by the name of Moisei Ginsburg, who had been based in Japan for many years and was now represented in all the important ports of the Far East.

  Sidney Reilly saw the Russo-Japanese War coming before most people, and in September 1903, Margaret was sent away, no doubt persuaded that this was for her own protection. Off she sailed towards America; and she did not reappear in Reilly’s life until the winter of 1904.

  Left alone in Port Arthur as the Japanese prepared plans to attack, Sidney Reilly devoted himself to an affair with the Russian wife of an Englishman, Horace Collins, who happened to be Russia’s chief intelligence agent in the town. Intelligence was being supplied to all the major powers, particularly the Japanese, who had no difficulty in getting their own citizens into construction gangs working on the harbour defences. The Russians couldn’t tell the difference and the Chinese weren’t telling, and one result was that the standard of workmanship was not of the highest.

  One person who knew about these Japanese masquerading as Chinese was a German spy calling himself Dr Franz von Cannitz, who resurfaced over a decade later as an acquaintance of Melville’s and a future British intelligence agent. He was Dr Armgaard Karl Graves.19 His account of life in Port Arthur at the time is worth quoting.

  Never in any place – and I know all the gayest and fastest places on earth – have I seen, comparatively speaking, such an enormous amount of wine in stock, or such a number of demi-mondaines assembled. Most of the officers had private harems. I often sat in the Casino and watched the officers of the First Tomsk Regiment, the 25th and 26th Siberian Rifles, practising with their newly supplied Mauser pistols on tables loaded with bottles containing the most costly vintage wines and cognacs. At such times the place literally [sic] ran ankle-deep in wine. There were over sixty gambling houses and dancing halls supporting more than a thousand filles de joie.

  This colourful account, exaggerated or even untrue as it certainly is, nonetheless indicates the mood of a wild east in which few secrets were retained. Von Cannitz, or Graves, was recalled to Berlin ‘exactly seven days before Togo’s first night attack’.20

  It is significant that in the Intelligence Department at Berlin they knew an attack was imminent, although they did not know it at Port Arthur. Furthermore, Russian securities dropped 18 points on the New York Stock Exchange before the official knowledge of the attack came through. This information leaked out through the German Embassy in Washington.21

  It all sounds convincing but we have only Graves’s word for it that he was ever in Port Arthur at all. Graves was a great self-mytholo-giser and the notion that the Germans were best-informed was flattering to him. British intelligence was thoroughly certain, on the other hand, that Sidney Reilly was spying for the Japanese.22 In February 1904, with the Japanese beginning a long siege of Port Arthur, Sidney Reilly too would leave – for Europe, and an opportunity to assist Mr Melville.

  On 1 December 1903, Melville began undercover work as W. Morgan, General Agent, of 25 Victoria Street. His two-roomed office was located just across Parliament Square from Scotland Yard, in a building whose public entrance was bedecked with business names while the second entrance was hidden around the corner. With amazement he found that although

  few men at this time were better known in London than I was… during the five years I was there I never met any person going in or coming out who knew me. This could only obtain in London.

  Detective work, actually being there and asking the questions, meeting the people and seeing the places where things happened and using the intuition born of long experience, was what he did best, and MO3 would exploit his skills to the full.

  My duties were rather vague, but were generally to enquire into suspicious cases which might be given to me; to report all cases of suspicious Germans which might come to my notice; the same as to Frenchmen and foreigners generally; to obtain suitable men to go abroad to obtain information; to be in touch with competent operators [and] to keep observation on suspected persons when necessary.

  Melville’s role included not only defensive counter-espionage but espionage itself, should he be able to ‘obtain suitable men to go abroad to obtain information’.

  The ‘vague’ duties resolved themselves at the start into a mission on which would depend the future of British naval defences and (had anyone suspected it at the time) the foundation of one of the world’s biggest companies. The background to the affair is succinctly set out in a letter of reminiscence dated 30 April 1919 from E.G. Pretyman MP to Sir Charles Greenway, the chairman of the Anglo-Persian Oil Company, in which he recounts his own involvement some fifteen years earlier, as Civil Lord of the Admiralty, in securing the Persian oil concession for Britain; ‘In 1904 it became obvious to the Board of the Admiralty that petroleum would largely supersede coal as the source of fuel supply to the Navy. It was also clear to us that that this would place the British Navy at a great disadvantage, because, whereas we possessed, within the British Isles, the best supply of coal in the world, a very small fraction of the known oil fields of the world lay within the British Dominions’.

  The Americans, Germans, Japanese and Russians had already acquired access to guaranteed supplies of oil. If Britain was to develop oil-powered ships she must have a large and guaranteed supply of her own.

  In the months preceding Melville’s appointment a wealthy Englishman, William Knox D’Arcy, had approached the Adm
iralty. Knox D’Arcy, having made his first fortune developing a gold mine in Australia, had bought the rights to exploit Persia’s oil reserves and was negotiating with the Turkish Government for similar rights in Mesopotamia (now Iraq). He was convinced that reserves existed, although so far no oil had been found. Petroleum already powered engines in the most advanced factories, agricultural equipment, ships and motor vehicles, and even fuelled the aircraft which the Wright Brothers had just – in this very year of 1903 – flown for the first time in America. Control of oil supplies would surely be important in time of war. But with every month that passed Knox D’Arcy was pouring more money into a hole in the ground. He required massive backing to finance further exploration and told the Admiralty that he would be prepared to sell an interest in the Persian concession.

  It all made sense but the Admiralty was unconvinced by Knox D’Arcy’s claim that oil would be found in Persia. They did not close the door on negotiations, but waited and did nothing. Quite how they discovered, in December of 1903, that Knox D’Arcy had turned to Lord Rothschild is uncertain, but it may have been learned through ‘shadowing’, surveillance and secret (illicit) interception of mail or telephone calls, and Melville was their only specialist in this regard.

  Knox D’Arcy’s proposition impressed Lord Rothschild, whose affairs were much too entangled with those of the British Government to allow him to assist. He therefore decided at the end of the month to write to his cousin in Paris. So it came about that, in February, Baron Alphonse de Rothschild and his team met Knox D’Arcy and a colleague of his, John Fletcher Moulton, in Cannes. Other guests at the Grand Hotel included a London couple, Mr and Mrs William Melville.

  It is astonishing that anyone with confidential matters to discuss should pick an hotel to do it in. Unlike personal domestic servants, hotel staff are notoriously willing to trade information for money – indeed excusably so; theirs is a service culture reliant on gratuities. Waste-paper bins, overheard conversations, phone calls intercepted at the hotel exchange, private letters consigned to the post and opened – an hotel is to security as a colander to water, and every leak would have been accessible to a man like Melville. How he obtained this particular intelligence is unknown, but Melville’s reports of the progress of these negotiations between Knox D’Arcy and an incipient French syndicate were sufficiently alarming to make Mr E.G. Pretyman, an MP and Civil Lord of the Admiralty, take up his pen: