Istanbul Intrigues » Chapter 12-Dogwood's Bite-The Fall of OSS-Istanbul
12 Dogwood’s Bite:
The Fall of OSS-Istanbul
He who loves roses must learn to deal with thorns.
One evening in September 1943, a slim, baby-faced man with wavy hair strolled across Istanbul’s Pera Bridge, enjoying the view. A large car pulled up alongside and stopped. The man in the backseat rolled down the window and leaned out, inviting the pedestrian to join him. Lieutenant Colonel Otto Hatz of the Hungarian army, whose military bearing was apparent despite his civilian clothes, entered the car and sat next to Andre Gyorgy.
The auto took them to the elegant neighborhood where the OSS owned a safe house. There, Schwarz and Coleman met Hatz to discuss how Hungary might quit the Axis and join the Allied side in the war.
The turning of Hungary was OSS-Istanbul’s most ambitious operation and Schwarz and Coleman sought to monopolize it. Since early 1943, the State Department and the OSS had been meeting secretly with Hungarian envoys. The British had reached an agreement with a Foreign Ministry representative of the civilian government. A Hungarian diplomat later wrote, “We were all full of optimism that step by step we would be able to remove all the pro-Nazis in the government” and make peace with the Allies. The OSS sought to deal directly with the Hungarian high command because it knew that any arrangement which did not include the Hungarian army would be militarily worthless.
Both Budapest and OSS-Istanbul thought Lieutenant Colonel Otto Hatz the ideal intermediary. A professional officer, he had served as Hungarian military attaché to Turkey and Bulgaria. Hatz was handsome, well-mannered, and had an excellent sense of humor. His satirical imitation of Hitler was particularly successful at parties. He had been a member of Hungary’s medal-winning Olympic fencing team and enjoyed good connections throughout the Hungarian military and intelligence hierarchy. Hatz avoided politics and got along well with pro-German officers as well as those more inclined to the Allied cause.
On the Allies’ behalf, Andre Gyorgy–who himself combined lucrative smuggling with work for the Hungarians, British, OSS, Zionists, and, unknown to these four groups, the Germans as well–got in touch with Hatz and urged him to visit Istanbul in September 1943. Hatz asked his superior, Colonel Gyula Kadar, to let him attend Turkey’s famous international trade fair in Izmir. Along the way, he visited Istanbul for separate clandestine meetings with the British and Americans. A British officer and Teddy Kollek of the Zionist service asked Hatz to gather intelligence for them in Hungary. Coleman and Schwarz told him to give the Hungarian high command an OSS offer to cooperate against the Germans.
Hatz returned to Budapest carrying a special suitcase given to him by Coleman. “I don’t care even if you arrest me,” he told Kadar. “But I must tell you that I reached an agreement with these Americans.” He opened the bag to show Kadar a radio transmitter which, Hatz said with some overstatement, could be used to get in touch with President Roosevelt. If the Hungarians wanted to talk further with the Americans, he added, the 8 o’clock radio news should broadcast for three nights an item referring to the Izmir fair. The American radio would also carry a special phrase to confirm the deal, appropriately enough, “Sincerity above all!”
Kadar and Hatz then went to see Hungary’s chief of staff, General Sombathay. The general’s reaction was positive: “Thank God! Finally an opportunity to start a contact. I have always wondered how we could find a way out of this terrible darkness.” After consulting the Foreign Ministry, Sombathay instructed Kadar and Hatz to continue discussions but to avoid using the radio. Thus Hatz began his career as the Hungarian military’s secret envoy to the Americans, telling his superiors everything that had happened in Istanbul.
But Hatz also discussed his experiences with someone else. On the way back to Budapest, he had made a brief stopover in Sofia and eaten dinner at the home of an old friend, Otto Wagner, the Abwehr chief there. Hatz told Wagner all about the Istanbul meetings. He claimed to have virtuously resisted British and American offers to become a spy but admitted he would continue talks with the OSS on ways to end the war. Above all, Hatz wanted Wagner to keep his betrayal secret from the Hungarian government.
“It’s good for us to be able to learn through him whether his government is really informing us about…his contacts with the Americans,” Wagner told Berlin. “In this way, nothing can happen against the interests of the Reich.” If the Hungarian regime kept Hatz’s activities secret from the Germans, Wagner warned, this meant Hungary planned to defect from the Axis.
The Germans did not completely trust Hatz, and he was not totally honest with them either. He claimed Hungary’s leaders were merely drawing information out of the Americans in the Axis’s interest rather than pursuing a serious peace initiative. The Abwehr reported that Hatz chased women and spent money too freely; there were rumors that he shared in Gyorgy’s smuggling profits. But the Abwehr also felt that Hatz was personally pro-German and had already rendered valuable services to Berlin.
The Americans were confident of Hatz’s loyalty. Unaware of Hatz’s double-dealings, Coleman told Macfarland on November 8, “Our original choice for Hungarian plan has been appointed.” The U.S. Joint Chiefs of Staff approved Macfarland’s proposal to try to obtain Hungary’s withdrawal from the war.
Hatz continued to shuttle back and forth between the OSS and the Hungarian leaders, stopping each time in Sofia for a chat with the Abwehr. On December 18, Hatz was picked up by an OSS car in Istanbul, driven in circles, and transferred to another car that delivered him to the OSS’s Bebek apartment, where Coleman and Schwarz were waiting.
Time was passing quickly, Coleman warned, and Hungary must decide where it stood. The Axis had lost the war. Hungary’s treatment at the peace table would depend on whether it now took active measures against Berlin. Hungary must accept a secret OSS advisory mission and prepare to rise against the Germans as soon as possible.
Hatz promised to convey the message faithfully. And he did so twice. On his way back to Budapest, Hatz stopped in Sofia and again went to Wagner’s house for dinner. He accurately reported on what the two OSS men had said, but falsely and cheerfully maintained to Wagner that he had rejected the OSS’s offer. His government would make no deals and provide no intelligence; it was only feigning an interest in U.S. proposals for Hungary to switch sides. He promised to inform the Germans of any anti-German actions by his country.
At their next meeting, Coleman and Schwarz made an incredible security blunder by telling Hatz they had been warned he was a double agent. If Hatz had told the Germans about this statement, they might have realized that the Allies had obtained this information by decoding Abwehr cables about meetings with Hatz. The Allies’ most valuable asset in the war might have been jeopardized because of a single slip-up in Istanbul.
Hatz, however, merely shrugged off the American accusation with an unconvincing rebuttal. He replied that a former Hungarian diplomat had congratulated him in the lobby of Budapest’s Ritz Hotel for saving Hungary by winning the Allies’ goodwill in Istanbul. If the secret talks were so well known in Hungary, the Germans must be aware of them without his saying a word. Hatz later repeated the same story, justifying his contacts with the Abwehr as attempts to convince the Germans that the Istanbul contacts were harmless.
Hatz’s apparent objective was to cover himself so well with each side that his position would be protected no matter who ultimately won. The damage done by him would be grave indeed. When the Hungarian government said nothing about its feelers to Istanbul, the Germans assumed that the regime was planning to desert the Axis. Hitler began planning to take over his wayward ally.
The Hungarian embassy in Berlin found the city abuzz with talk about the secret Hungarian-Allied dialogue. Budapest was panic-stricken, knowing that time was running out. “We have to find away out of this war,” Sombathay dramatically told his intelligence chief, Kadar, and Hatz. “We must continue these contacts to get some help….If I fail in this I will go to my hanging with pride because the nation will justify what I have done later.”
The more down-to-earth Kadar later recounted: “This sounded very good….But what could we do in this situation? It was necessary to keep talking and we somehow had to get the suspicion away from us.” After long discussion, the Hungarians decided that Kadar and Hatz would tell the Abwehr’s chief, Canaris, that the Americans had approached them and suggest that these contacts might be used to obtain useful information about Allied military plans.
The meeting took place in Munich on January 9′ 1944. Hatz told his new story in a very convincing manner while the poker-faced Canaris I listened without saying a word. Finally, Canaris responded: “It’s out of the question to give permission for something like that. You are naive. The Americans are cunning and would give away nothing. The only thing that would happen is that you would be suspected as spies and this would have immeasurable consequences.” Kadar could only feign agreement and tell Hatz to have no further contact with the Americans.
Of course, as a German officer, Canaris opposed Hungary’s defection. But his statement’s wording also suggested a friendly warning that Berlin knew a great deal about Budapest’s plots and would destroy Hungary before letting them succeed: Certainly, many Abwehr officers doubted that Germany could win the war and some openly criticized Hitler. After dinner, a German infantry officer argued that the Soviets would be exhausted, the Atlantic defenses were too strong, and the Reich would soon produce miracle weapons. A member of Canaris’s staff pulled Kadar aside and asked mockingly, “Do you believe all that you have just heard?”
Unsure whether this was a provocation, Kadar replied, “Obviously, that’s the way we judge the situation, too.”
“Please, colonel, don’t pretend,” said the German. “You absolutely cannot believe this stupidity. We already have lost this war. We might be able to drag it out for awhile but if we get attacks from the west as well we will not be able to hold back the Russians. Within days we will collapse.” Kadar preferred to be thought stupid rather than to fall into a trap, so he repeated the optimistic talk he had heard earlier. The man gave him a disgusted look and walked away.
But despite feigning pro-German sentiments, the Hungarians could not convince Canaris to endorse their feelers to the Allies. “So,” Kadar recounted, “our trip was useless. Even worse, we were definitely forbidden to continue the contacts.” Nevertheless, the Hungarians decided to go on with only a slight change: instead of Hatz meeting the Americans directly, most of the talks would go through his friend Luther Kovess.
Hatz continued to play a central role in the affair while tipping off the Germans. The Allies had enough evidence of Hatz’s betrayal, but it came from the highly secret breaking of German codes and thus few people could be told how definitive was this proof. Macfarland neither knew of the reliable source of the information against Hatz nor properly heeded Donovan’s warnings.
On January 9, 1944, Donovan again cabled Macfarland that an extremely reliable source indicated that Hatz (given the Dogwood code name “Jasmine”) was working “under double-cross orders” and giving information to the Germans. Eight days later, OSS-Cairo radioed Macfarland that Dogwood’s courier, Gyorgy, was involved in currency smuggling “approved by Hungarian intelligence. He is a Hungarian agent and has assured Germans he would keep them informed of his contacts.” The fact that Gyorgy was a Hungarian agent was not so bad, but his German connections were another matter.
“As you know,” Macfarland wrote OSS-Cairo on January 19, “I have never been very enthusiastic about this whole project and probably would not have gone as far as [Coleman] did with Donovan and the Joint Chiefs of Staff.” Macfarland was fatally wrong in underestimating the disastrous effect of Hatz’s behavior. “We assumed,” Macfarland wrote, that Hatz’s contact with the Germans “was his method of keeping his cover. It may of course be a perfect double cross and we are very much on our guard. The same message has come to us from the British here. It is perfectly possible of course that the story of his wishing to double cross us is a German plant in order to scare us away from dealing with him….We shall do everything we can to be cautious about our dealings or the making of any plans based upon his statements. If our good friends of [OSS counterintelligence] would loosen up on a few of their trained agents, we would have a little better chance of following up matters of this kind.”
Yet OSS-Istanbul was hardly cautious in its dealings with Luther Kovess, the man now charged with the responsibility of maintaining its secret links with the Hungarians. Kovess, a personal friend of both Hatz and Schwarz, was enlisted as Dogwood’s agent “Jacaranda.” The son of an Austro-Hungarian aristocrat and himself a naval officer of that vanished empire, Kovess had come down in the post-1918 world. After the war, Hungary had no seacoast and thus no navy. Kovess became a Socony-Vacuum tanker captain and then worked for Archibald Walker in Istanbul as superintendent of the company’s ships. He applied for British citizenship in the 1930s, a fact he later hid with shame when his outspoken pro-Nazi views brought him the nickname “Hitler’s first lieutenant” in Istanbul.
British intelligence put him under close surveillance but found no hint that Kovess had sabotaged ships under his care. The U.S. company fired him only after America entered the war and Hungary became an enemy state. Kovess stayed in Istanbul to represent the Danube Shipping Company, an Abwehr front.
It is hard to understand how a man who was so suspected of pro-German sympathies could have become Dogwood’s supervisor of Hungarian operations. But the OSS’s Walker, Kovess’s boss for years at Socony-Vacuum, vouched for him, as did Schwarz himself. Kovess, Schwarz wrote, “is a devoted sympathizer with the Allied cause and an inveterate enemy of Nazi Germany.” Kovess admitted having friends in German intelligence but insisted that he was very careful. He traveled to Budapest twice at great apparent risk to gather information. To survive, however, he trafficked with both Hungarian intelligence and the Abwehr. His loyalties did not lay exclusively with the Allies.
On January 22 a special meeting was held between Hatz, Coleman, Schwarz, and Colonel Vala Mocarski, who had come from Cairo as Donovan’s personal representative. Walter Arndt interpreted. Another member of the small group at this top-secret gathering was Baron Luther Kovess. Unaware that two triple agents were sitting across the table, Colonel Mocarski explained the situation: “The leaders of Hitler’s satellites will be considered guilty of war crimes and punished after the war. If Hungary’s generals would escape that fate, they must seize the present opportunity of leading a revolt against Germany.” The Hungarian general staff, he continued, must provide the Allies with military intelligence and its plans for sabotaging the German war effort.
Hatz replied that the high command might not consider it advisable or ethical to divulge military secrets. Mocarski was annoyed. Questions of ethics had not stopped the generals from betraying Yugoslavia and cooperating fully with Hitler, he complained. Tactfully but firmly, Mocarski explained that nothing less than complete and genuine collaboration would count. Otherwise, there was no sense in continuing talks.
The word “collaboration” was disturbing, Hatz said, as it implied unpatriotic submissiveness. If Coleman and Mocarski had known of Hatz’s betrayal in Sofia, they would have been outraged about his delicacy on this point. More fundamentally, Hatz continued, Hungary was inhibited from acting because it feared German or Soviet occupation.
If the Nazis tried to take over Hungary, explained Mocarski, the United States expected it to resist and destroy strategic facilities. As for Hungary’s worries about the Soviets, Mocarski continued, all the Allies had pledged to let people choose their government democratically rather than imposing any particular system on them. The Soviets posed no more threat to Hungary than did Britain or America. To central Europeans, such ideas seemed an example of the Americans’ hopeless naïveté.
After the patient explanation came the hard sell. Time was critical, Mocarski warned, and any indecision or further delay would be interpreted as a rejection of the U.S. offer. Hatz promised to return to Hungary and provide a definite answer.
One reason for Macfarland’s carelessness in dealing with Hatz and Kovess was Donovan’s demand for quick results. “Our work calls for action and not speech,” the OSS chief radioed Macfarland the day after the meeting. Macfarland was focusing on Budapest’s response, not on the reliability of his intermediaries. His main concern was to reassure superiors that he would make no binding political commitments. “We are seeking military cooperation with Hungary …not political negotiations,” he told Washington.
Even so, the question of Hatz’s betrayal was seriously mishandled. Donovan radioed Macfarland on February 5: “My warning regarding Hatz has been followed by you I trust. Inform me fully concerning this matter.”
The next day, Macfarland replied: “We received your cable on Hatz….He [only] still serves the function of courier…he possesses no information concerning our organization or plans the disclosure of which might prove embarrassing. [The] memo which he carries to Sombathay for suggested collaboration is a simple outline of how this group can proceed if they want to collaborate and in German hands could do no harm.” Macfarland could not have been more wrong.
At least, however, Hatz obtained a quick and positive response to the American ultimatum from Hungary’s military command, which agreed to receive an OSS mission to help manage the preparations for its switch from Axis to Allies. Kadar moved his radio to the apartment of his beautiful mistress, Hungary’s most famous stage actress, so he would have it ready for contacting Istanbul.
The plan was code-named “Operation Sparrow.” God might note even a sparrow’s fall, but the parachuting of three OSS men into Hungary would hopefully pass unnoticed by the Germans. In command was Colonel Florimond Duke. A college-football star player and an officer in World War I, Duke became advertising director of Fortune, Time, and Life magazines. He joined military intelligence in 1940, served as an army attaché in Cairo, transferred to the OSS, and directed its Balkan desk from Washington. The 49-year-old Duke, who had never parachuted before, insisted on coming from Washington to lead the dangerous mission.
While all these plans were coalescing, some OSS men in Istanbul were growing increasingly doubtful about the Dogwood operation. If, they had known about Hatz and Kovess, they would have been even more alarmed. The British, also suspicious, demanded more information on the network’s sources. One OSS officer noted that a Dogwood report from Budapest about German troop movements was almost identical to a statement made by a known German agent.
A second OSS man complained on February 6 that Coleman “has fought any attempts on our part to trace down [German] ‘plants,’ get information on reliability of sub-sources, etc….Eventually our pressure seems to have had some effect. [Coleman] has been separated from the Dogwood show….We are not holding our breath until it happens, but things should eventually work out. Then we will be able to give [Cairo] and Washington the necessary check-up on sources, additional information desired, etc. Dogwood has possibilities but must be watched closely as he evaluated his [German] plants as high as his reliable stuff.”
The chief of the OSS’s regular Istanbul operations, John Wickham, argued that Coleman’s organization was overrated, too costly, and out of control. Another matter worried Wickham even more. “The subject of ‘double agents’ is with us constantly,” he wrote in his February 1944 report. “Many here believe [double agents] to be the best sources of information on our enemies,” arguing that such men knew a great deal and that American agents could outsmart them “to get more than they give.” This idea was misguided, Wickham warned. The double agents knew only what was necessary to do their job, “namely, to feed out enemy propaganda.”
Since the OSS men had little training, Wickham added, it was not clear who was fooling whom. “We are trying to steer clear of these characters,” he concluded, unhappy with being nominally responsible for Dogwood while having no say in its direction. Donovan angrily wrote that Wickham’s report “ought to be put through the wringer.” But Wickham’s concerns would turn out to be correct. The network was riddled with double agents, and its mistakes were about to prove disastrous.
The Germans knew a great deal about the Allies’ operations from Istanbul. The reports of Hatz and other Abwehr-Hungarian-OSS triple spies working with Dogwood tipped them off that some very big operations were under way. These agents, driven by venality and fear, were playing a complex, dangerous game. Hatz, Gyorgy, Kovess, and the others had the most privileged view of the war, since their duties constantly took them across the lines.
They had to tell the Germans just enough to protect their skins but not so much as to put their own behavior in question. At the same time, they had to make themselves useful enough to the Allies in order to continue enjoying the OSS’s confidence and financing. By traveling across the battle lines, these men saw enough to know that the Allies were likely to win the war. In this situation, they were clever–or foolish–enough to believe they could play both sides, avoiding German punishment in the short run while reaping the victorious Allies’ gratitude.
Those working also for Hungary had to convince each side of Budapest’s loyalty as well. German intelligence officials worried that the triple agents might really be working with OSS to manipulate them. Berlin knew, for example, that Hatz had ignored Canaris’s order to stop seeing the Americans and understood that all these shadowy figures were also working for Hungary and their own personal interests.
Being a triple agent was no easy profession; there were many moments when discovery and execution seemed imminent. But there was also plenty of money to be made by those willing to offer their services to more than one intelligence agency. Gyorgy was a common criminal, Budapest’s smuggler king for gold, diamonds, and oriental carpets. He inhabited a world where espionage and gangsterism met. Gestapo and Abwehr officers wanted to use Gyorgy’s proven abilities to make money for them. The Abwehr saved him from a Hungarian prison sentence in 1942 so that he could set up dummy companies to circumvent the Allied embargo on Germany. A few months later Hungarian intelligence demanded that Gyorgy keep it informed of German activities. Under orders from Budapest, Hatz helped Gyorgy carry out his missions while probably taking a share in his smuggling profits.
Hungarian Jewish groups turned to Gyorgy in the spring of 1943 to carry money and travel documents from Istanbul to Budapest. It was a calculated risk, but they had no alternative: Who else but a smuggler having good relations with the enemy could cross the border? Thus, Gyorgy came into contact with the Zionist and British intelligence services in Istanbul. His connection with Hungarian intelligence did not deter them, since they wanted to use Gyorgy to establish regular contact with the men he worked for in Budapest. The Hungarians were quite willing to employ Gyorgy to carry messages to the Allies. If pressed by the Germans, Hungary could always deny responsibility for Gyorgy’s activities by branding him a common criminal.
Gyorgy’s efforts to gather intelligence were laughable. His own “reports” might have been copied from British radio broadcasts. On one occasion, he was sitting in an Istanbul apartment with Allied officials. Trying to figure out their plans, Gyorgy wagered a large sum that the Americans would be in Budapest by Christmas 1943. Knowing there was no chance of this happening, the others accepted the bet. Gyorgy paid promptly when he lost. But Gyorgy was being employed as a man who could get across borders, not as a man of integrity.
Known as “Trillium,” Gyorgy became the main OSS courier between Budapest and Istanbul. British decoding of German communications told the OSS that Gyorgy was a “double agent who works for the Germans, Hungarian Counterintelligence, the British and OSS.” Nonetheless, Dogwood blandly and naively described him as an “uncompromising Allied partisan.”
Berlin also had other means for discovering the secrets of Dogwood and the Hungarians. The Abwehr in Budapest had a budget of $3000 a month for suborning Hungarian officers and officials. It also ran covert counterintelligence operations. In one case, a German agent was disguised as an envoy from Tito, the Yugoslav Communist partisan leader, to contact Hungarian officials and ascertain their true sentiments. Those who helped him were later arrested.
The Abwehr’s best single source on Dogwood may have been a Prague native named Frantisek Laufer. Tall, slim, and blond, he looked more Aryan than did most of the Nazis. Since he was half-Jewish, however, he was marked for deportation when the Germans seized Czechoslovakia. Instead, he made a deal: the Abwehr gave him papers as an Aryan in exchange for collaboration.
As early as April 1941, Czech anti-Nazis observed Laufer riding in a car with German officers, though he tried to avoid being recognized. When later asked about it, he responded lamely that he had paid the Germans to give him a ride. Laufer moved to Budapest, where Czech intelligence had its main base of operations. He traveled to Istanbul “on business” in June 1941 and picked up $5000 to finance Czech underground work. But resistance members working with him tended to be arrested. Laufer bought his wife expensive jewelry, though he had previously complained of being penniless. Despite his warning to keep the gifts secret, she could not resist showing them to friends. A Czech informant tipped off an American diplomat about Laufer in November 1941, but the report was lost in the files.
Laufer rose in the Abwehr hierarchy to the rank of chief subagent. At the same time, he infiltrated the Dogwood ring. The OSS’s tight-lipped policy kept Allied counterintelligence from discovering that Laufer was the network agent code-named “Iris.” While Gyorgy handled the Istanbul-Budapest run, Laufer was courier for the Budapest-Vienna leg and visited Czechoslovakia, Switzerland, and Istanbul itself.
Unaware of these penetrations in his espionage ring, Macfarland held a meeting to launch the Hungarian operation in Istanbul on February 27. For the first time, he met directly with Hatz, with Schwarz and Kovess also present. Hatz would go to Budapest. Through him, the Hungarian military command could send high-grade intelligence over the OSS radio set already there. The Hungarian generals would also secretly receive OSS advisers and draw up plans to fight the Germans.
As Russian armies closed in from the east and the Germans threatened from the west, Budapest’s people engaged in giddy wishful thinking in the face of impending doom. “Never,” a diplomat there said, “was the season as filled with dinners, luncheons, teas and cocktail parties….The streets were still crowded with well-dressed flaneurs, the shops with luxury goods at immense prices which yet found buyers.” Historian C. A. Macartney wrote: “Three-quarters of Budapest society openly feted the coming victory of the Western Powers….Those Socialist politicians who a month later would be either prisoners in [a concentration camp] or lurking in the attics of friends addressed the largest audiences of their lives, which they tickled with promises of a democratic world just around the corner–a world which neither speakers nor audiences would ever see.”
At 11 p.m. on March 15, 1944–Hungary’s independence day–the OSS’s Colonel Florimond Duke and two fellow officers climbed into a British plane at a base in Brindisi, Italy. The flight first detoured over Austria to drop two Austrian underground men dressed in German army uniforms. Their radio was pushed out the door after them; its, parachute had been set to open automatically. But as Duke watched in horror, the wireless came loose from its parachute and smashed into the ground, leaving the two men isolated far behind German lines, unable to transmit any intelligence they gathered.
The plane flew onward. Just across the Yugoslav-Hungarian border, Duke’s team jumped and landed safely near a Hungarian village. The uniformed Americans were quickly surrounded by peasants who called a nearby army outpost. The men stuck to their cover story: they were headed for Yugoslavia to advise the partisans, but they had become lost and ended up in Hungary by mistake.
Now, as planned, the chief of Hungarian counterintelligence arrived at the backwater border town and took control of the prisoners. He drove the “captured” Americans to Budapest in a closed ambulance, arriving there at sunset on March 18. When the “prisoners” emerged at intelligence headquarters near the city’s center, Hungarian soldiers politely showed them to a large, comfortable cell and closed, but did not lock, the door.
A few minutes later, waiters entered with wine and a huge silver tray of food from one of Budapest’s best restaurants. They bowed and set the table. “Royal treatment!” exclaimed one of Duke’s men. Dessert was followed by the entrance of General Ujszaszy himself. The intelligence chief bowed crisply and asked, “Well, gentlemen, what is your proposition?”
“You know the proposition, sir…unconditional surrender,” answered Duke. It was an absurd situation. Unarmed, alone, and hundreds of miles from Allied forces, three Americans were demanding the capitulation of an entire country and army. “Meanwhile,” Duke continued, “we are here to see what can be done, and how we can help Hungary do it.”
“Precisely,” agreed Ujszaszy. “We shall be working together.” Unfortunately, he continued, there was one complication. Duke would have to wait a few days before meeting Horthy and other high officials because they were out of town. Duke was surprised and angry. He wondered how the country’s leaders could be so irresponsible as to go on a trip at this crucial moment. In fact, they had been summoned to Germany for a critical meeting with Hitler.
In preparation for Duke’s mission, Hatz had smuggled two radios into Budapest and delivered them to Kovess, who was in town to help receive the Americans. Kovess was supposed to give one radio set to Laufer and the other to Messner’s Austrian underground group. Once direct wireless communication was established with Messner, another OSS team was to parachute into Austria in mid-April.
To coordinate this plan, Messner went to Switzerland to meet Allen Dulles. Dulles approved of the operation. “I wish to offer my congratulations to Packy [Macfarland] for his accomplishments in developing this line,” he cabled Donovan. Messner “impressed us very favorably, We are convinced that he is worthy of all our support and we will make arrangements to give him some modest financial assistance from here if he requests it.”
But the Germans had not been fooled. They knew of all these plans through the triple agents. To forestall Hungary’s desertion, Hitler had decided to take over that country and smash the Austrian resistance simultaneously, a decision justified on the basis of Hatz’s reports to the Abwehr. Hitler proceeded with his usual diabolical cleverness. He made Horthy and General Sombathay visit him in Germany. Then, after delivering a harangue about Hungarian perfidy, Hitler ordered them held as hostages. The Germans told Budapest that the delegation’s return was delayed by an Allied air raid that disrupted rail service.
On the night of Saturday, March 18, as Duke and his men were meeting their Hungarian hosts, a half-dozen German divisions entered Hungary. Troop trains bound for the eastern front stopped in Hungarian stations and, as onlookers watched in amazement, disgorged their armed passengers. Without orders from Horthy or Sombathay, the Hungarian army refused to fight. Telephones rang allover Budapest summoning the peace conspirators to flee for their lives or burn papers at their offices. By morning, the sky over the government ministries on Buda Hill was gray with smoke.
The unsuspecting Colonel Duke was awakened at 5 a. m. on Sunday and called into General Ujszaszy’s presence. The intelligence chief had been up all night trying to deal with the crisis. His eyes were bloodshot and his hands trembled as he announced that the Germans would arrive within an hour. The Americans demanded to be evacuated, but they were told the Germans had seized all the airfields and sealed the borders. Two days later, the Hungarians turned the OSS men over to the Germans, claiming-so that the Americans would not be shot as spies–that they were ordinary prisoners of war. Although the Germans knew this was a lie, Duke and the other two officers refused to admit anything; they were sent to a high-security prison for the rest of the war.
Prime Minister Kállay, leader of the efforts to make peace with the Allies, eluded the Gestapo and took refuge in the Turkish embassy. When the Germans threatened to kill others unless he gave himself up, Kállay surrendered and was sent to the Dachau death camp. He survived. Under pressure from the Germans, General Ujszaszy and Colonel Kadar were court-martialed by the Hungarian army, but their fellow officers only put them under house arrest. Veress, the diplomat who had secretly negotiated Hungary’s agreement with the Allies, took a train to Romania using his still-uncanceled diplomatic passport and crossed the border just before a Gestapo order to arrest him arrived there. He made his way to Yugoslavia and was safely conveyed to Italy by the partisans.
The Germans had also laid their trap for the Austrian resistance. When Messner and his secretary went to Budapest to pick up the radio, the Gestapo arrested them, acting on leads supplied by Hatz, Laufer, or Kovess. Under torture, the Austrians gave the names of others. Twenty people, including Messner, were killed; only two of the most active members survived. In April 1944, Laufer brought a German-inspired message to Istanbul, trying to lure Franz Josef Ridiger, who ran the Austrian underground’s operations there, to Budapest. Ridiger wisely refused. “If Cassia[‘s group was] ever a possibility,” Macfarland cabled Washington, it was “now unreliable and should be dropped.”
The Germans were unsure about how to treat Hatz, Kovess, and Gyorgy. They faced the classic problem in dealing with double agents: deciding for whom they were really working. If Macfarland felt Hatz was only pretending to help the Abwehr, the agent’s captors wondered the same thing. For their part, the imprisoned triple agents were miserable, not knowing whether they would be shot or tortured and having to conceal their double-dealings from anti-Nazi fellow prisoners.
Part of their problem was that their Abwehr bosses were now disgraced in Hitler’s eyes. Having finally discovered the Abwehr’s connections with resistance elements, the führer had dismissed Canaris and put the fanatically Nazi SD in charge of intelligence. The SO suspected that anyone connected with the Abwehr was a probable traitor and only decided to release the triple agents after three weeks of tough questioning.
With the collapse of all its operations in Hungary and Austria, the OSS now had even more reason to distrust Hatz. When Laufer sent word that he had managed Hatz’s release, OSS headquarters in Washington ordered Macfarland to have no further dealings with the two men. If the Germans let Hatz return to Istanbul, Donovan warned, it would prove that he was working for them. Ironically, it was Hatz’s release from prison that finally persuaded the OSS that he was untrustworthy, yet he had been arrested in the first place only because the Germans also mistrusted him.
Despite Washington’s orders, both the OSS and the State Department met Hatz when he came back to Istanbul on June 8. Hatz had an explanation for everything. He claimed Gyorgy had betrayed him to the Gestapo, but he said the Germans had no proof of his involvement in the Sparrow mission. Hatz credited his release to an appeal from the Hungarian high command and to his promise to report for duty on the eastern front. As he left Istanbul for the last time, Hatz’s parting words were, “After all, I wouldn’t worry very much. The whole business [the war] will certainly be over in a very few months.”
For Hatz, it was finished even sooner. He was already engaged with Kadar in a new conspiracy. Kadar’s mistress introduced him to the Communist underground’s leader in Budapest, and the two men met secretly. Hatz urged his government to make a separate deal with Moscow.
On November 7, 1944, as the Soviet army advanced into Hungary, Hatz defected to the Russians in a reconnaissance plane. In retaliation, the Gestapo sent his parents, brother, and fiancée to a concentration camp in Germany, where his mother and fiancée died. When the Red Army occupied Budapest some weeks later, it made Hatz the mayor’s security adviser. Having worked almost simultaneously with Hungarian, U.S., two German, and Soviet intelligence agencies, Hatz was one of history’s most remarkable spies.
But the events in Austria and Hungary also destroyed the reputation of the Dogwood ring and almost everyone connected with it. The treachery of Hatz, Gyorgy, and Laufer was inescapably clear. When Laufer asked Istanbul in May 1944 to set up secret meetings for him in Switzerland, the OSS concluded he wanted to penetrate Allen Dulles’s operation. OSS- Washington radioed Macfarland on May 31, “Dogwood himself as well as the entire Dogwood chain is dangerous.” The OSS ended all contacts with Laufer. He was last seen fleeing with German forces to Vienna at the end of the war.
All Dogwood’s reports were reassessed in light of the debacle in Hungary. The very analysts who had so highly praised that work a few months ago now rushed to ridicule it. The OSS’s London office told the Istanbul station: “Your questioned reports were probably [German] plants, the idea having been to play down target importance of [a] factory complex until it was better defended and then to play it up. Source and subsources all part of one chain composed mostly of double agents….By definition our reliance on same source for clarifying data would be futile. Currently have no other sources [providing] original intelligence [on] this subject.”
A similarly skeptical report from London comparing examples of Dogwood’s dispatches with aerial photoreconnaissance noted: “According to the best available information here there is no [aircraft] engine plant at Ruzyno….The production figures are fantastically high, in fact well informed sources here believe that very little production is going on there….The drawing is so wildly inaccurate that it is of no use.”
The Austrian spinning mills which Dogwood’s agents reported to have been making fighter planes were still making cloth for uniforms. Fifteenth Air Force intelligence commented that the Messerschmitt works outside Vienna, reported to have been under repair, had been knocked “deader than hell….The main plant was knocked out in November  and never recovered.” Another airplane factory, which the Dogwood network had reported destroyed, made only parts. “It was hit but not put out of action. Vital buildings escaped.” One of Dogwood’s most important scoops–the shifting of ball-bearing production–was now viewed as quite doubtful. “The series of little wooden shops alleged to be location of ball-bearing plant is absurd on the face of it; ball bearings could not be manufactured except in big buildings.” Reports on the Heinkel plane works at Haidfeld-Schwechat, said London, “are usually highly exaggerated.”
Messner’s Cassia ring was also accused of feeding distorted production figures and distracting the Allies from more important targets. The U.S. Fifteenth Air Force reviewed the entire file of its reports and now concluded they were “inaccurate, vague, and exaggerated. Maps [were] out of scale, erroneous and useless.” The OSS concluded, “In view of his presumable access to the true production picture in Germany, [Messner’s] apparent efforts to ‘load’ us with such exaggerated figures are clear-cut indications that all material from him should be treated with great reserve.”
The British concluded that many of Messner’s reports were exaggerated or formulated to divert Allied bombers from more important bombing targets. There was, postwar research would show, some truth to this view. Sometimes, Cassia’s businessmen wanted to protect their own factories and tried to divert Allied raids from plants even in the immediate vicinity. But the main problem was that the Austrians’ lack of training or experience in spying made them overrate data from low-ranking German soldiers and draw maps inaccurately. Still, if the Austrians were amateurish, they were also courageous patriots who were rightfully judged heroes after the war.
If some of Cassia’s reports were considered questionable, the very worst ones came from agent “Dahlia,” Dogwood’s source inside the German embassy in Turkey. This man was revealed to be one Fritz Fiala. Although his name means “daisy” in his native Slovakia, Fiala’s character was closer to the exotic flower of his code name. Of the five double agents known to have penetrated the Dogwood ring, Fiala was the only one who was a dedicated Nazi.
A journalist by profession, Fiala was an early Nazi party member. Once, at the behest of Gestapo official Adolf Eichmann, he wrote a series of articles for the newspaper he edited–Der Grinzbote in Bratislava, Czechoslovakia–claiming that the Auschwitz concentration camp was humanely run. In Istanbul, Fiala was editor at Europapress-Transkontinent, a German propaganda news agency. A State Department report called Fiala “the Gestapo’s man of confidence,” so trusted by the SO that it made him one of the three men who took the gold from the German courier plane to pay its staff in Turkey.
Fiala’s OSS employers argued that these credentials only enhanced his value as a spy, but using such an individual further undermined Dogwood’s credibility as Fiala’s game became increasingly clear to the OSS. The last straw was a “ridiculous, exaggerated” April report over- estimating German forces in the Balkans. Schwarz was ordered to stop meeting Fiala, who was considered too clever for him.
After all these disasters, one battered OSS-Istanbul officer wrote a colleague in Cairo: “We are pretty well reduced to the white-flowering tree [Dogwood]. And events have imposed a pretty severe blight on that. Most of the blossoms fall to pieces in your hands before you can put them in water.”
Macfarland defended Dogwood. “I am convinced that the major contacts established through this chain are extremely valuable ones,” he wrote Washington. While Dogwood’s information had, he agreed on June 10, “deteriorated considerably during the past 3-4 months…it has some valuable contacts which should be retained. Please bear in mind that, in the early stages, we used the Dogwood office as a [middleman] for many unrelated agents….There seems to be a tendency…to make it appear that every Dogwood sub-source is known to the other” and thus German infiltrators could expose loyal OSS agents. “This is far from the truth although security has not been too good.” He also pointed out that OSS headquarters had not fulfilled his requests for men knowledgeable about Germany, Hungary, and counterintelligence.
Macfarland’s defense was partly accurate. Dogwood’s Western Electric office was a clearinghouse for many agents, some of whom had provided good intelligence and important contacts with German, Austrian, and Hungarian anti-Nazi groups. And OSS-Istanbul’s task had been inherently difficult. As a British intelligence report noted: “However reliable, well-briefed and trained, agents cannot be sufficiently aware of the general enemy situation in Europe accurately to assess all information which comes their way. They therefore naturally pass on a proportion of information, particularly that obtained at second-hand, which is distorted or false.” Those who had been too willing to accept Dogwood’s reports at the beginning quickly reversed their views when the network came under fire. An OSS-Istanbul intelligence analyst wrote years later, “Dogwood, fashionable at one time, became a villain at another.”
Nevertheless, Dogwood was taken in too often. Any good work done by an enemy-penetrated ring only underwrites the credentials of those using it for deception. Agents like Laufer, Fiala, Hatz, Gyorgy, and Kovess made the network’s balance sheet quite negative. The final report on Dogwood himself by OSS-Istanbul’s regular analysts–always his severest critics–complained, “The man is a consummate egotist who apparently believes himself omniscient and…crafty, and it [seems] that through his vanity and desire for power he has…been made the tool of any number of German agents.” Macfarland and Coleman had shown poor judgment in handling Hatz and Kovess. Other men paid with their lives for these mistakes.
Macfarland’s direct superior, the chief of OSS-Cairo, wrote the commander of the OSS base in Bari, Italy, on July 25, “I have recommended to General Donovan that [Macfarland] be replaced by [Frank] Wisner and the staff be cut approximately in half.” Everyone liked Macfarland, he continued, but “my own observations of the work he left behind him in Turkey have given me the strong opinion that he did considerable damage to OSS’s work and reputation there.” The other officer replied, “Your information about Macfarland sent cold chills up and down our backs …all of us have the highest respect and appreciation for Macfarland personally but do not under any consideration wish to have him attached to Bari in any capacity.”
The OSS terminated the Dogwood network on July 31, 1944. Macfarland was removed from his position as OSS chief in Turkey on August 9 and assigned to evacuate downed Allied fliers from Yugoslavia. Coleman was sent home to resign. Schwarz was fired; he stayed in Istanbul, where he prospered in business before retiring to Switzerland.
Schwarz’s aide, Arndt, had been told little by his boss and was judged blameless for everything that had gone wrong. He worked as an OSS radio broadcaster and then emigrated to the United States. There he became a respected scholar and produced a popular translation of a book quite relevant to life in Istanbul at a time when so many men sold their souls: Goethe’s Faust.