Full text of "Interlocking subversion in Government Departments. Hearing before the Subcommittee to Investigate the Administration of the Internal Security Act and Other Internal Security Laws of the Committee on the Judiciary, United States Senate, Eighty-third Congress, second session,first session]"

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Given By
U S. SUFT. OF DOCU.MENTS

INTERLOCKING SUBVERSION IN
GOVERNMENT DEPARTMENTS

HEARING

BEFORE THE

SUBCOMMITTEE TO INVESTIGATE THE

ADMINISTRATION OF THE INTERNAL SECURITY

ACT AND OTHER INTERNAL SECURITY LAWS

OF THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE

EIGHTY-THIRD CONGRESS

FIRST SESSION

INTERLOCKING SUBVERSION IN GOVERNMENT
DEPARTMENTS

JUNE 25, 1953

PART 13

Printed for the use of the Committee on the Judiciary

UNITED STATES
GOVERNMENT PRINTING OFFICE
32918° WASHINGTON : 1953

Boston Public Lfarary
Superintendent of Documents

FEB 9 - 1954

COMMITTEE ON THE JUDICIARY

WILLIAM LANGER, North Dakota, Chairman

ALEXANDER WILEY, Wisconsin PAT McCARRAN, Nevada

WILLIAM E. JENNER, Indiana HARLEY M. KILGORE, West Virginia

ARTHUR V. WATKINS, Utah JAMES O. EASTLAND, Mississippi

ROBERT C. HENDRICKSON, New Jersey ESTES KEPAUVER, Tennessee

EVERETT McKINLEY DIRKSEN, Illinois OLIN D. JOHNSTON, South Carolina

HERMAN WELKER, Idaho THOMAS C. HENNINGS, Jr., Missouri
JOHN MARSHALL BUTLER, Maryland

Subcommittee To Investigate the Administration of the Internal Security
Act and Other Internal Security Laws

WILLIAM E. JENNER, Indiana, Chairman
ARTHUR V. WATKINS, Utah PAT McCARRAN, Nevada

ROBERT C. HENDRICKSON, New Jersey JAMES O. EASTLAND, Mississippi

HERMAN WELKER, Idaho *

JOHN MARSHALL BUTLER, Maryland OLIN D. JOHNSTON, South Carolina

Robert Morris, Chief Counsel
Benjamin Mandel, Director of Research

* Senator Willis Smith, North Carolina, participated actively in the work of the subcom-
mittee until his untimely death on June 23, 1953.

INTEKLOCKING SUBVERSION IN GOVERNMENT
DEPARTMENTS

THURSDAY, JUNE 25, 1953

United Stated Senate,
Subcommittee To Investigate the Administeation
OF the Internal Security Act, and Other Internal

Security Laws, of the Committee on the Judiciary,

Washwgton^ D. C.
The subcommittee met, pursuant to call, at 10 :30 a. m., in room 318,
Senate Office Building, Senator William E. Jenner (chairman of the
subcommittee) presiding.

Present : Senators Jenner, Welker, Butler, and McCarran.
Also present: Robert Morris, subcommittee counsel; Benjamin
Mandel, director of research ; and Robert C. McManus, staff member.
The Chairman. The committee will come to order.
Mr. Panuch, will you be sworn to testify?

Do you swear that the testimony given in this hearing will be the
truth, the whole truth, and nothing but the truth, so help you God?
Mr. Panuch. I do, so help me God.
The Chairman. You may be seated.

TESTIMONY OF J. ANTHONY PANUCH, NEW YORK, N. Y.

The Chairman. You may state your full name to the committee.

Mr. Panuch. J. Anthony Panuch.

The Chairman. Where do you reside, Mr. Panuch?

Mr. Panuch. 44 East 67th Street, New York City.

The Chairman. What is your business or profession?

Mr. Panuch. I am a lawyer by profession.
• The Chairman. Where is your law office located?

Mr. Panuch. 60 East 42d Street, New York City.

The Chairman. Mr. Morris, you may proceed with the question-
ing of the witness.

Mr. Morris. Mr. Chairman, this witness has been preceded by wit-
nesses who have been in the Office of Strategic Services, the Office of
War Information and the Office of Inter- American Affairs. Many of
these witnesses whom I have just described have been identified in
sworn testimony to have been active in the Communist organization.
When called to the stand, all of these people invoked their privilege
against incrimination. In connection with this incidence, Mr.
Panuch has been called here today to give general background testi-
mony on the reorganization of the State Department that took place
at approximately that time.

The Chairman. All right. You may proceed.

841

842 INTERLOCKING SUBVERSION IN GOVERNMENT i

Mr. Morris. Mr. Panuch, would you outline tlie duties that you
have had in connection with service with the United States Govern-
ment prior to your work in the State Department?

Mr. Panuch. In September of 1938 I became special counsel to
the Securities and Exchange Commission in corporate reorganiza-
tions.

My jurisdiction involved the representation of the Commission in
all corporate reorganizations conducted in the Federal courts in the
Federal districts of Connecticut, New York, Pennsylvania, and New
Jersey. I held that position until January of 1942. In 1942 I became
deputy chairman and later chairman of the policy committee of the
Board of Economic Warfare. That committee was composed of rep-
resentatives of the Army, Navy, War Production Board, Office of
Price Administration, Lend-Lease, State Department, Petroleum Ad-
ministration, and a couple of others.

The function of that committee was to screen exports from a. policy
standpoint, and when I say "exports," I mean nonmilitary exports
going to Latin America and the non-Axis nations.

W^ile in the Board of Economic Warfare, I was that Board's repre-
sentative to the requirement committee of the War Production Board,
representing the national export interests.

In January 1943 I came to the War Department and became special
and confidential assistant to Gen. Lucius D. Clay, then Director of
Materiel of the Armed Service Forces. I held that position with
General Clay until the end of 1944 and accompanied General Clay to
the Office of War Mobilization and Reconversion when he became
deputy to Mr. Justice Byrnes, who was then Director of War Mobili-
zation. I held that position under Mr. Justice Vinson and Director
Snyder until October of 1945.

In October of 1945, upon Mr. Byrnes' request, I joined him in the
State Department in the capacity of Deputy Assistant Secretary of
State for Administration and as coordinator of the merger of the
Department under the three Executive orders which blended with the
Department the wartime agencies operating in the foreign field.

These agencies were the Office of War Information, the intelligence
units of the Office of Strategic Services, the Office of Inter-American
Afi^airs, the Foreign Economic Administration, and the Office of For-
eign Liquidation Commissioner. There were also certain units of the
War Department General Staff concerned with occupation planning.

I stayed in the State Department until January of 1947 and then
rejoined General Clay in Germany. He was at that time commander
in chief, European Command, and United States Military Governor
for Germany. I was in his cabinet with Ambassador Murphy and
Ambassador Draper, without portfolio. My special function was
administration, reorganization, congressional relations, and special
assignments of a policy character.

In that connection and among other assignments I reorganized the
military government and the military theater in its common functions
and laid the framework for the organization of the Western Republic
of Germany and for the shift of control — that is. Allied control — from
a military government to the Allied High Commission for Germany.

I then returned to the United States in 1950 and resumed my prac-
tice of law and presently I am, in addition to practicing law, serving

INTERLOCKING SUBVERSION IN GOVERNMENT 843

on Governor Dewey's commission on city charter revision, without
compensation.

Mr. Morris. Mr. Panuch, would you tell us precisely when and
under what circumstances you went in the service of the State Depart-
ment ?

Mr. Panuch. In October of 1945 I was asked to come to the Depart-
ment to conduct the merger and the reorganization of the Department,
growing out of the merger, under the Executive order. I believe I
furnished you with a copy of my designation.

Mr. INIoRRis. Mr. Panuch, I have duplicates of exhibits that we are
going to make reference to. Duplicates of exhibits that we are going
to make reference to have been put in front of you : "Departmental
Designation 300, issued October 24, 1945."

Mr. Panuch. Yes, sir.

Mr. Morris. Will you describe that for us ?

Mr. Panuch. I was asked to prepare a chart for my duties, and
Mr. Byrnes said, "Don't make it very long"; and I said, "All I need
is about six lines"; and this is the result, and he signed it, and I was
in business.

Mr. Morris. This is Mr. Byrnes' designation of you as Deputy to
the Assistant Secretary for Administration?

Mr. Panuch. That is right.

Mr. Morris. You will —

act as coordinator until such time as the coordination and integration of func-
tions transferred to the Department under Executive Orders 9608, 9621, and 9630
is completed.

Mr. Panuch. The second point was necessary in order to give me
the authority that was required to put the reorganization into effect.
That was the deputization of Mr. Byrnes as Secretary of State under
Mr. Truman's Executive order. So I w^as his direct Deputy under
the executive power.

Mr. Morris. May that go into the record, Mr. Chairman ?

The Chairman. It may go into the record and become a part of the
record.

(The document referred to was marked "Exhibit No. 261" and
follows:)

Exhibit No. 261

Department of State

Departmental designation 300. Issued 10-24-45.

Effective 10-24-45.

OFFICE OF THE ASSISTANT SECRETARY FOR ADMINISTRATION (A-R)

1. Mr. J. Anthony Panuch is herel)y designated Deputy to the Assistant Secre-
tary for Administration (routing symbol A-R/P).

2. Mr. Panuch will also act as Coordinator until such time as the coordination
and integration of functions transferred to the Department under Executive
Orders 9608, 9621, and 9630 is completed.

James F. Byrnes.
OcTOP.ER 24, 1945.

Mr. Morris. You mentioned, in the course of describing your Gov-
ermnent functions, the reorganization of the State Department during
October 1945. Now, what was the precise position you held in con-
^ nection with that particular reorganization ?

Mr. Panuch. Well, you had to hold two positions really, to effect
the reorganization. One was the power iinder the Executive order.

844 INTERLOCKING SUBVERSION IN GOVERNMENT

to deal with the properties, personnel, and functions that were trans-
ferred to the Department, and under the administrative order it was
necessary that I be the deputy to the chief administrative officer of
the Department to implement this into the structure of the Depart-
ment as it then existed.

Mr. Morris. Wliat was the origin of this particular reorganization?
How did that get its start ?

Mr. Panuch. That was in the Bureau of the Budget.

Mr. Morris. Will you trace the development of that, to the best
of your own knowledge?

Mr. Panuch. You mean these agencies?

Mr. Morris. No. You say that the original Executive order was
drafted in the Bureau of the Budget?

Mr. Panuch. Yes.

Mr. Morris. Do you know who in the Bureau of the Budget did
this?

Mr. Panuch. No.

Mr. Morris. Then how was it transferred over into the State
Department?

Mr. Panuch. Well, the Executive order acted as the transfer to
the Department, and after that we simply took over the functions and
the properties, the funds and personnel of these agencies; we set up
an organization under my jurisdiction, to effect the transfer.

Mr. Morris- Now, Mr. Panuch, will you look at the next exhibit
you have there? That is the letter from Mr. Truman, dated January
22, 1946.

Mr. Panuch. January 22; Yes, sir.

Mr. Morris. Wliat is that, Mr. Panuch ?

Mr. Panuch. That is the directive signed by President Truman,
setting up the National Intelligence Authority, and under it the
Central Intelligence Group, under the headship of Gen. Hoyt Vanden-
berg, taking over Central Intelligence operations that could not be
performed by the agencies of the Government having their own
intelligence units, and that is the predecessor of the present statutory
Central Intelligence Agency.

Mr. Morris. May that go into the record?

The Chairman. It may go into the record and become a part of the
record ?

(The document referred to was marked "Exhibit No. 262" and
follows:)

Exhibit No. 262

The White House,
Washington, January 22, 19Jf6.
To The Secketaky of State,
The Secretary of War, and

The Secretary of the Navy,

1. It is my desire, and I hereby direct, tliat all Federal foreign intelligence
activities be planned, developed and coordinated so as to assure the most effective
accomplishment of the intelligence mission related to the national security. I
hereby designated you, together with another person to be named by me as my
personal representative, as the National Intelligence Authority to accomplish this
purpose.

2. Within the limits of available appropriations, you shall each from time to
time assign persons and facilities from your respective Departments, which
persons shall collectively form a Central Intelligence Group and shall, under the
direction of a Director of Central Intelligence, assist the National Intelligence

INTERLOCKING SUBVERSION IN GOVERNMENT 845

lAuthority. The Director of Central Iiitolliseiice shall be designated by me,
shall be responsible to the National Intelligence Authority, and shall sit as a-
nonvotinff member thereof.

3. Subject to the existing law, and to the direction and control of the National
Intelligence Authority, the Director of Central Intelligence shall :

(a) Accomplish the correlation and evaluation of intelligence relating to
the national security, and the appropriate dissemination within the Govern-
ment of the resulting strategic and national policy intelligence. In so doing,
full use shall be made of the staff and facilities of the intelligence agencies of
your Departments.

(b) Plan for the coordination of such of the activities of the intelligence
agencies of your Departments as relate to the national security and recom-
mend to the National Intelligence Authority the establishment of such ovei'-
all policies and objectives as will assure the most effective accomplishment
of the national intelligence mission.

(c) Perform, for the benefit of said intelligence agencies, such services of
common concern as the National Intelligence Authority determines can be
more efficiently accomplished centrally.

(d) Perform such other functions and duties related to intelligence affect
ing the national security as the President and the National Intelligence
Authority may from time to time direct.

4. No police, law enforcement or internal security functions shall be exer-
cised under this directive.

.I. Such intelligence received by the intelligence agencies of your Departments
as may be designated by the National Intelligence Authority shall be freely
available to the Director of Central Intelligence for correlation, evaluation or
dissemination. To the extent approved by the National Intelligence Ai;thority,
the operations of said intelligence agencies shall be open to inspection by the
Director of Central Intelligence in connection with planning functions.

.6 The existing intelligence agencies of your Departments shall continue to
collect, evaluate, correlate and disseminate departmental intelligence.

7. The Director of Central Intelligence shall be advised by an Intelligence
Advisory Board consisting of the heads (or their representatives) of the prin-
cipal military and civilian intelligence agencies of the Government having func-
tions related to national security, as determined by the National Intelligence
Authority.

8. Within the scope of existing law and Presidential directives, other depart-
ments and agencies of the executive branch of the Federal Government shall
furnish such intelligence information relating to the national security as is in
their possession, and as the Director of Central Intelligence may from time to
time request pursuant to regulations of the National Intelligence Authority.

9. Nothing herein shall be construed to authorize the making of investigations
inside the continental limits of the United States and its possessions, except as
provided by law and Presidential directives.

10. In the conduct of their activities the National Intelligence Authority and
the Director of Central Intelligence shall be responsible for fully protecting
intelligence sources and methods.

Sincerely yours,

Harry Truman.

Mr. Morris. Will you look at the next document, "Organization and
procedure on agency transfers"?

Mr. Panuch. Yes, sir.

Mr. Morris. Will you identify that document, Mr. Panuch?

Mr. Panuch. That was a document which I issued over my signa-
ture and which set up the blueprint of the reorganization which was
to handle the transfer and the methods of procedure in effecting the
transfer of the agencies put into the State Department by Executive
order.

That has a chart, incidentally, sir, of the agencies affected.

Mr. Morris. Mr. Chairman, may those two documents go into the
record ?

The Chairman. The first document is already in. The second doc-
ument may go into the record and become a part of the record.

846 INTERLOCKING SUBVERSION IN GOVERNMENT

(The document referred to was marked "Exhibit No. 263" and
follows :)

Exhibit No. 263

Department of State

Administrative Instruction, Coordinator 1. Issued 10-26-45.

Effective 10-24-45.

organization and procedure on agency transfers
Purpose

The purpose of this Instruction is to establish the requisite machinery and
appropriate procedures to accomplish the transfer to the State Department pur-
suant to Executive Orders Nos. 9608, 9621, and 9630 of certain functions, per-
sonnel, funds, and equipment of —

Office of Strategic Services

Oflace of War Information

Office of Inter-American Affairs

Foreign Economic Administration

Army and Navy Liquidation Commission

1. Time : Such transfers shall be completed on or before December 81, 1945.

2. Mission : The Coordinator and the Committees and Groups serving under
his direction shall be responsible for:

(a) Proper integration into the Department of the functions, positions, per-
sonnel, facilities, and funds transferred pursuant to the respective Executive
Orders.

(6) Inventory, evaluation, and allocation among the several Departmental and
Foreign Service interests of the budgetary, fiscal personnel, and central service
functions, positions, personnel, facilities, and funds of the agencies referred to
above.

3. Transfer Organization :

(a) Coordinator. — Reporting and responsible to the Assistant Secretary for
Administration, the Coordinator shall direct and expedite the transfers referred
to above. He shall be assisted by an Executive and an appropriate secretariat.

(h) Agency Task Ch-oups. — Responsibility for the gathering and development of
all program and administrative data pertinent to the transfers shall be assigned
on an agency basis to three specialists as follows :
Specialist for OSS
Specialist for OWI— OIAA
Specialist for FEA— ANLC
Each specialist, within his own sphere of responsibility shall :

{i) act as Chairman of an Agency Task Group consisting of representa-
tives of budget, accounts, general services, security, personnel, and foreign
service.

(ii) establish appropriate procedures for the systematic and orderly col-
lection and development of all pertinent transfer data.

{in) assure prompt dissemination of such data among the members of his
Task Group.

(iv) report and be responsible to the Coordinator.
{v) "follow up" action with the offices responsible for action.
{vi) working out and recommending means of integration,
(c) Functional Groups. — The data developed by the several Task Groups shall
be coordinated on a functional basis and translated into Departmental and
Foreign Service action by the chiefs of the following elements of their designees :
Budget and Finance
Personnel
Central Services
Foreign Service
Security
Each divisional chief or his designee shall :

(i) act as Chairman of a functional group consisting of the appropriate
Departmental and Foreign Service specialists and their opposite numbers in
the agencies whose functions are being transferred.

(ii) maintain current liaison with appropriate functional specialists on
the several Task Groups.

INTERLOCKING SUBVERSION IN GOVERNMENT

847

(iii) develop requirements of the Departmental and Foreign Service inter-
ests for program and administrative data and prescribe the form and detail
in which it will be presented.

(iv) each designee must be fully authorized to act for his oi'ganization.
(d) Steering Committee. — The work of the Functional and Task Groups shall
be correlated by a Steering Committee under the chairmanship of the Coordinator.
The Steering Committee shall consist of the Chairman of the Task and Func-
tional Groups.
4. Miscellaneous :

(«) The chairman of the Steering Committee shall prescribe its rules of con-
duct, regulate its procedures and fix the time and place of its meetings.

(h) Procedures of the several Task and Functional Groups shall be fixed by
the Chairman of each group. Except where considerations of flexibility appear
to be paramount, such procedures should follow the same general pattern.

(c) Reports of group chairmen to the Coordinator shall be filed with the
Executive who shall act as Executive Secretary of the Steering Committee.

(rf) Designations of personnel to carry out the plan of transfer above outlined
are hereby made in Schedule A attached. Changes in such designation may
be made at any time by the Coordinator.

J. Anthony Panuch, Coordinator.
OCTOBEK 24, 1945.

COORDINATOR
J, .Inthony Panuch
EXECUTIVE OFFICER
0, A. SIMMES

AGENCY TASK GROUPS

STEERING
COimiTTEE

OSS
McKay

Budget
Accounts
Personnel
Dept. Services
Security
Foreign Service

Ot.g-OIAA
Ward-Stewart

Budget
Accounts
Personnel
Dept. Services
Security
Foreign Service

FUNCTIONAL GROUPS

FEA-AMLC
A'Heam

Budget
Accounts
Personnel
Dept. Services
Security
Foreign Service

1 »

FOREIGN

Howell -

Budget

SERVICE

Thompson -

Fiscal

Steyne
033

OSS

OVff

OIAA

FEA

AIILC

AI.-LC

PERSONNEL
Morgan

OSS
Ol.l

OIAA

FEA

A^.'LC

SERVICES

Gen. Serv,
Cooney - Com.

OSS

ova

OIAA

FEA

ANLC

SECURITY
Bannerman

OSS

OWI

OIAA

FEA

ANLC

Mr. Morris. Mr. Panuch, will you tell us to the best of your abil-
ity— and drawing on your own first-hand experiences, how this Execu-
tive order was executed whereby the agencies that we have been dis-
cussing, were transferred over to the Department of State?

Mr. Paxuch. Do you mean to tell you what happened ?

Mr. MoRiiis. Yes. Tell us exactly what happened, drawing on your
own personal experience and describing in as full detail as possible.

32918°— 53— pt. 13 2

848 INTERLOCKING SUBVERSION IN GOVERNMENT

Mr. Panuch. Well, prior to the war the State Department had
been a policy agency exclusively and with a limited grouping of
economic and cultural and other functions. During the war it was
necessary to build up other agencies to carry on operational functions
in the field of foreign affairs, which were not directly policy functions,
and for that purpose many agencies were organized, and the best
examples of that in the economic field is the Board of Economic War-
fare which subsequently became the Foreign Economic Administra-
tion, the Office of Lencl-Lease Administration, which handled loans
and the financing of our allies' mobilizations ; the Offices of Strategic
Services, which handled strategic services parallel to army operations,
resistance movements, and secret intelligence, the Office of War Infor-
mation which handled propaganda, and the Office of Inter-American
Affairs, under Nelson Rockefeller, which handled cultural relations
with the Latin American countries, and, toward the end of the war, the
Office of Foreign Liquidation was set up under Mr. McCabe,. who
handled the disposal of foreign surplus in theaters of war.

Mr. Morris. As I understand it, all of these organizations which
you just described, were being incorporated into and transferred into
the Department of State ?

Mr. Panuch. With one exception, the strategic units of the Office
of Strategic Services, which remained in the War Department, under
direct control of Assistant Secretary Patterson.

Mr. Morris. One branch was not transferred, therefore?

Mr. Panuch. Secret service unit of OSS was not transferred.

Mr. Morris. What was transferred to the State Department?

Mr. Panuch. All intelligence.

Mr. Morris. Now, Mr. Chairman, we have had quite a few wit-
nesses from all these various agencies at various times, and I think
that since we have at this time a qualified witness present, it would
be good if we got the genesis of each of these agencies.

The Chairman. Proceed.

Mr. Morris. I wonder if you could give us a genesis of the Office
of War Information ?

Mr. Panuch. I think the Office of War Information

Mr. Morris. When you came into the State Department, it was in
existence and about to be transferred to the State Department, is that
right ?

Mr. Panuch. That is correct.

Mr. Morris. Could you tell us to the best of your ability where that
particular agency had its origin ?

Mr. Panuch. This is about my best recollection, sir, and this is all
a matter of record in the Federal Register, but I believe the Office
of War Information was the logical development of the Office of
Facts and Figures with the superimposition of radio broadcasting
and requisite underlying intelligence, and foreign operations. I be-
lieve the Office of Strategic Services was the direct outgrowth of
what started out to be the Office of Information collection or coor-
dination, OIC, they called it.

The Office of Foreign Economic Administration

Mr. Morris. That is the FEA ?

Mr. Panuch. FEA started out originally as the Office of Export
Control. That was then taken over by the Board of Economic War-

INTERLOCKING SUBVERSION IN GOVERNMENT 849

fare in, I think, December 1941 and the Board of Economic Warfare
was a sort of an inter-Cabinet agency for economic matters.

The Office of Lend-Lease Administration came into the Foreign
Economic Administration, I think, in 1943 or early 1944. That was
the time wlien Mr, Wallace stepped out and was replaced by Mr.
Crowley as the Administrator of FEA.

Mr. Morris. Who was the head of the FEA at the time you were
undertaking' this reorganization?

Mr. Panuch. You mean when I took in the State Department?

Mr. Morris. Yes.

Mr. Panuch. It had no head; just bodies.

Mr. Morris. Just before it went in, who w^as the head at that time ?

Mr. Panuch. I don't recollect.

Mr. Morris. What was Mr. Crowley's position at that time?

JNIr. Panuch. Mr. Crowley was the Administrator of Foreign Eco-
nomic Administration.

Mr. Morris. Who was his Deputy ?

Mr. Panuch. I think Mr. Lauchlin Currie.

Senator Welker. Who ?

Mr. Panuch. Mr. Lauchlin Currie.

Mr. Morris. Will you tell us, Mr. Panuch, how this reorganization
hecame effective?

Mr. Panuch. It added to the Department functions which had
theretofore never been in the Department; specifically, propaganda
functions in the Office of War Information, which were then blended
with an expansion of cultural relations in one group which was
headed by Mr. Assistant Secretary Benton, and that combined and
liad under its jurisdiction cultural affairs, foreign information, and
Voice broadcasting to foreign countries. It is in effect the same setup
tliat is in the State Department, or was in the State Department prior
to this administration, and is now being transferred out.

The Office of Strategic Services brought in about 1,000 people from
their Research and Intelligence Branch, and they were to be used
under the President's order to create the nucleus of the centralized
intelligence operation. Subsequently the President issued a directive
to Secretary Byrnes, directing him to undertake the coordination
of all foreign intelligence under the leadership of the State Depart-
ment. I believe that that was on September 20, 1945.

At the same time there w as before the President a proposed direc-
\ive for setting up a Central Intelligence Agency, which was sub-
mitted by the Joint Chiefs of Staff, and the Department then had
the problem of advising the Secretary of State and the President as
to what combination or correlation of these two entirely different
concepts of mobilizing foreign intelligence at the national level should
be blended into a forward operation.

The Office of Inter- American Affairs

Mr. Morris. Just 1 minute.

Senator McCarran, this is Mr. Panuch, wdio w^as appointed by Secre-
tary Byrnes in 1945 as the Deputy Assistant Secretary for Administra-
tion, and who was the officer in charge of effecting the reorganization
that brought the Office of Strategic Services, or at least one portion
of that organization; the Office of War Information; the Office of
Inter-American Affairs; and the Foreign Economic Administration

850 INTERLOCKING SUBVERSION IN GOVERNMENT ,

into the State Department; and he has been describing to the com-
mittee the steps and the processes by which that transfer was accom-
plished. Please continue.

Mr. Panuch. The Foreign Economic Administration, sir, involved
a strengthening of the economic groupings in the State Department
from these people who had had actual operational experience in the
Board of Economic Warfare, in the Foreign Economic Administra-
tion, and they were to be used in connection with the Economic Social
Council of the United Nations, and the work of policy development
in the Department with the U. N. specialized agencies, and, of course,
the Secretariat of the U. N.

The Office of Inter- American Affairs was to be integrated into the
cultural elements of the public affairs portfolio on a Latin American
basis, and the group in the Office of Foreign Liquidation was supposed
to set up policy criteria for the disposal of surpluses in the theaters
of war, which were then to be handled with the Army units there
in existence, under policy guidance of the State Department.

Mr. Morris. Mr. Panuch, to your knowledge, and drawing on your
own experience, were there any political changes to be wrought by this
reorganization ?

Mr. Panuch. Well, it was a thoroughgoing reorganization of the
Department by the addition of functions which necessarily changed the
political or rather the policy structure of the Department.

The Intelligence directive to set up coordinated intelligence on a
national level in a centralized unit of the Department presented a
problem as to whether your tail would be wagging your dog; in other
words, whether the intelligence units, coming in from these agencies,
which would be the focal core of your national intelligence organiza-
tion, would, by a preemption of high-level estimates which go to
the Secretary of State and the President and the National Security
Council, be really exercising an influence over policy beyond that
which was traditionally exercised by the Foreign Service of the United
States, through the geographic divisions of the Department.

Mr. Morris. Now, was one of the purposes of this to place all for-
eign-affairs activities directly under the control of the Secretary of
State?

Mr, Panuch. I beg your pardon ?

Mr. Morris. Was one of the purposes of this reorganization to place
all foreign-affairs activities under the State Department?

Mr. Panuch. That was the stated purpose of the merger.

Mr. Morris. I see. And you have so informed the committee, in
executive session, of that fact. Did you understand my use of the
word "political" there ?

Mr. Panuch. I understood it in the sense of policy.

Mr. Morris. That is right.

Now, do you know of plans of Gen. Otto Nelson to merge the De-
partment and Foreign Service at approximately that time ?

Mr. Panuch. I don't know whether it originated with General
Nelson. I do know that there was considerable activity and sup-
port in the Bureau of the Budget for legislation which would, to a very
great extent, blend the incoming personnel and the personnel who
were in the Department and were not members of the Foreign Service,

INTERLOCKING SUBVERSION IN GOVERNMENT 851

as such, into new Career Service. That was one of the great issues
of this merger.

Mr. MoRKis. What haj^pened to that?

Mr. Panuch. I, with Mr. Russell's consent

Mr. Morris. Who was Mr. Russell ?

Mr. Panuch. Mr. Russell was my immediate superior, Assistant
Secretary for Administration, and I was his Deputy.

The Chairman. Mr. Panuch, we have had testimony from various
sources, supported by a State Department publication on postwar
planning, that the postwar structure of the Department had been
envisioned for several years, and that Alger Hiss moved into this area
in 1944.

At the time of your entrance into the State Department, what was
Mr. Hiss doing ?

Mr. Panuch. Mr. Hiss was deputy to Mr. Pasvolsky, who was a
special assistant in charge of the International Security Organization,
and I think the chart will show the precise title that Mr. Pasvolsky's
portfolio had. But the agency under Mr. Pasvolsky which was in Mr.
Hiss' charge was the Office of Special Political Affairs, and that had
policy jurisdiction of all international organization and the logistic
and policy support of our activities in international organizations,
which specifically were the United Nations, the Specialized Agencies,
and the American complement of personnel in the United Nations'
Secretariat.

The Chairman. What positions did Alger Hiss hold in the State
Department while you were the Deputy Assistant Secretary of State?

Mr. Panuch. Mr. Hiss held the position of Director of the Office of
Special Political Affairs.

The Chairman. Did you ever become suspicious of Alger Hiss ?

Mr. Panuch. Mr. Chairman, one of the elements in my jurisdiction
was the security operation of the Department, and naturally we had a
file on Alger Hiss, and the file showed a good deal of the matters that
came out before the Un-American Affairs Committee [sic] in 1948,
and subsequently came out at the trial.

The Chairman. Wlien did you become suspicious of him ?

Mr. Panuch. I was always suspicious of Alger Hiss.

The Chairman. You were always suspicious of him? What was
his role in the United Nations?

Mr. Panuch, Well, he was the chief organizational and policy
planner of our activities in the United Nations Organization.

The Chairman. Mr. Mandel, I have here a memorandum for Mr.
Russell, whom I believe you testified, Mr. Panuch, was your immediate
superior ?

Mr. Panuch. Yes.

The Chairman. It is marked "Confidential." I would like for you
to read this into the record in reference to the question just asked Mr.
Panuch.

Mr. Morris. This is a memorandum from Mr. Panuch for Mr. Rus-
sell, dated March 7, 1946, and I think that you should have your copy
directly in front of you, Mr. Panuch.

Mr. Mandel, would you read that into the record?

Senator McCarran. This is from what file?

Mr. Morris. Mr. Panuch. will 7/ou identify this document?

852 INTERLOCKING SUBVERSION IN GOVERNMENT

Mr. Panuch. This is a memorandum which I wrote on March 7,
1946, to Mr. Kussell, and the subject is Hiss Plan for Reorganization
of the State Department.

Mr. Morris. Now, this is your own memorandum ?

Mr. Panuch. This is my own memorandum.

Mr. Morris. And these other documents that we have put into the
record are documents that you have supplied to the committee, are
they not?

Mr. Panuch. Yes.

Mr. Morris. And they are official documents?

Mr. Panuch. They are my stayback files ; yes.

Mr. Morris. Mr. Mandel, will you read at least the first part of that
into the record, please ?

Mr. Mandel (reading) :

[Confidential]

March 7, 1946.
Memorandum for Mr. Russell.
Subject : Hiss Plan for Reorganization of tlie State Department.

1. I have read with mingled feelings of admiration and horror the outline of
the above, as revealed in Mr. Pasvolsky's memoran<lum to the Secretary of State
March 5, 1946.

Mr. Morris. What was that memorandum to the Secretary of State
of March 5, 1946?

Mr. Panuch. As I have told you, Mr. Morris, I don't have a copy
of that, but my very clear recollection

Mr. Morris. That is what we want — your recollection of that mem-
orandum.

Mr. Panuch. My very clear recollection of that was that it involved
in essence the transfer of Mr. Hiss' Office of Special Political Afi'airs
from the level where it was with the other political and economic offices
directly into the Office of the Under Secretary of State.

Mr. Morris. That is very interesting. Will you develop that just
a bit more, Mr. Panuch, for us ?

Mr. Panuch. If I had a chart — it is enormously complex, you know.

Mr. Morris. I know that you are now testifying from your memory
of the Pasvolsky memorandum.

Mr. Panuch. You want the full effect of the proposal ?

Mr. Morris. No ; just describe the nature of the transfer that was
being contemplated.

Mr. Panuch. Well, as you know, the Department of State operates
through its political offices, its economic offices, and its cultural affairs
and intelligence offices, which were all at one level of authority.

Mr. Hiss' Office of Special Political Affairs, in proposing policy
matters for the United Nations, would be required to coordinate with
these geographic and other offices when it was at its level that it was
prior to this memorandum or had this memorandum of his gone into
effect.

NoWj if it went into the Office of the Under Secretary of State, while
as a matter of good administration he might have sought the advice of
other officials of the Department, or other duly constituted officials of
the Department as to coordination of his policy suggestions, it would
not be required of him as a matter of jurisdiction, because, if you will
notice in the plan, the Nelson plan there, the jurisdiction of the Office
of Special Political Affairs was virtually exclusive in connection with

INTERLOCKING SUBVERSION IN GOVERNMENT 853

international organization and international security organization.
If you put that at the Secretary's level, it would be exclusive in fact.

Senator McCarran. Giving him exclusive powers?

Mr. Panuch. Yes, sir.

Senator McCarran. And that plan was set up by Hiss?

Mr. Paxuch. I don't know who set up that. That was prior to
my entry into the Department. It was a matter of record and a part
of our jurisdictional setup when I entered.

The Chairman. Go ahead with the memorandum.

Mr. Mandel (reading) :

The plan's simplicity of design is admirable; its concept is grandiose. If
accomplished, it will make Colonel McCormack's plans for the reorganization
of the Department under the cloak of organizing "intelligence" appear pro-
vincial and myopic by comparison.

2. In examining the plan and assessing its implications in terms of control,
it should be remembered that Dr. Hiss exercises Svengali-like influence over
the mental processes of Junior Stettinius, the United States Delegate to UNO.
Through Mr. Rothwell, his designee for the post of Secretary-General of the
United States Delegation to UNO, Dr. Hiss vv'ill enjoy "working control" over
the flow of papers in and out of the Secretariat of the United States group.
The proposed plan would establish a similar control setup within the State
Department, where Dr. Hiss already wields considerable influence with the
counselor on UNO matters. This would be effected by the simple device of
establishing a new Office for United Nations Affairs, which would report directly
to the Under Secretary. Under the plan, the Director of this new office (Dr.
Hiss) would be the Under Secretary's Deputy for United Nations Affairs.

3. If this ambitious project should be approved, it is obvious that the opera-
tions of the new office, as the "initiating and coordinating center within the
Department" for UNO affairs, will, for all practical purposes, supplant and
supersede the functions of the geographic and economic offices of the Depart-
ment. In such event, the question arises to what extent the de jure policy
output of the Department will be diluted by the day-to-day de facto policy
product as established by Mr. Stettinius' counterpart of the State Department,
functioning within the UNO orbit of influence in New York. If Dr. Hiss should
succeed in causing Dr. Appleby to be designated as the UNO Assistant Secre-
tary General for Administration, the Hiss group will have achieved infiltration
in, or control of, four critically strategic points, I. e., (a) UNO itself (Feller
Appleby) (b) the United States Delegation (Stettinius and Rothwell) (c)
State Department (Hiss, Ross, OUNOA), and (d) Bureau of the Budget Harold
Smith, Sehwarzwalder).

The Chairman. Mr. Panuch, who else would have access to the
security files besides you ?

Mr. Panuch. I didn't have direct access to the security files. That
was handled by the divisions under my jurisdiction. One at that
time was the office of personnel investigations, and the other was what
was then known as the control office. That was under the jurisdic-
tion of Mr. Frederick Lyon ; and the security officer, acting directly
under Mr. Lyon at that time, was Mr. Bannerman.

The Chairman. What were the Hiss proposals with respect to SPA ?

Mr. Panuch. They were simply organizational proposals.

The Chairman. Wliere did you see them first?

]\Ir. Panuch. They came in to Mr. Russell's office for a concurrence,
and naturally, they came to me and this memorandum was the result.

The Chairman. Was your memorandum helpful in stopping this
project?

Mr. Panuch. My memorandum killed it deader than a door nail.

The Chairman. What moved you, Mr. Panuch, to take this action?
Mr. Paxuch. I think, sir, that the memorandum speaks for itself.
At that time a very great issue in the State Department — and this

854 INTERLOCKING SUBVERSION IN GOVERNMENT

is an organizational issue which has policy implications — was whether
our policy formulation process would initiate with our foreign service
officers who had been trained and were experienced in foreign affairs,
or whether it would go into the hands of people who had no such
training, departmental employees, who staffed Hiss' office of special
political affairs, or its successor under his reorganization proposal.

The Chairman. Mr. Panuch, did you ever see a memorandum by
Donald Hiss, proposing consolidation of economic functions?

Mr. Panuch. No, sir ; I did not — but that was the policy of the Bu-
reau of the Budget with respect to State Department economic func-
tions, and that was in controversy while I was there.

Senator Welker. Mr. Chairman, may I have a question ?

The Chairman. Senator Welker.

Senator Welker. How did the reorganization which you have de-
scribed, Mr. Panuch, seek to change the level of control in the various
policy agencies?

Mr. Panuch. Senator, if I may offer a correction before answer-
ing your question as to semantics, I know in Government, everybody
talks about levels, but I would like to say "pattern."

Senator Welker. Let us call it "pattern."

Mr. Panuch. If I may, sir, I think the pattern, the essential part
of the pattern was to shift your policy formulation, the essential basis
on which your ultimate policy estimates are made, into a central intel-
ligence group which would overbalance your policy offices of the De-
partment. In that way, while there would be no change in level,
there would be a change in pattern impetus, control and direction.
The other change, of course, was the historic change which was initi-
ated by our entry into the United Nations Organization, which placed
a large part of our foreign policy on an international basis rather than
on the traditional country-to-country or bilateral basis. So that at
the end of the war you would have had three groupings of policy
formulation : Your international work in the United Nations ; the
liquidation of the war through the Council of Foreign Ministers, in-
volving the Big Four; and lately, diplomatic relations with countries
which were neither in the United Nations nor in the Council of For-
eign Ministers group ; for instance. Franco's Spain.

Senator Welker. And I am safe in the conclusion that it brought
the intelligence and research functions from OSS and the propaganda
from OWI, and I think you have stated, the economic functions and
the economic intelligence from FEA?

Mr. Panuch. Yes, sir.

Senator Welker. Senator McCarran has suggested that you adjust
the microphone ; that he is having trouble in getting your answers.

Senator McCarran. He is just shaking his head, not answering.

The Chairman. The reporter does not get the nods, so just answer.

Senator Welker. Was there an attempt to reorganize all intelli-
gence matters which would have gone further than the ones actually
effected ?

Mr. Panuch. Yes. If I gather by that present question

Senator Welker. That would go back to the Presidential order of
September 1945, that interim arrangement?

INTERLOCKING SUBVERSION IN GOVERNMENT 855

Mr. Panucii. Yes. The Presidential order charged the Secretary
of State with setting- up a strong Central Intelligence Unit within
the State Department. That immediately created the issue that I
spoke of, as to where your balance of policy would be. The second
element of the directive was to coordinate the Central Intelligence
operations of all other agencies. Now, of course, one of the things
involved was secret foreign operations, and I felt that it was not
proper for the State Department to indulge in any clandestine foreign
operations, that that was properly a matter for a centralized agency.
I took the position that that should be outside of the Department,
and subsequent]}' President Truman and Admiral Leahy and Secre-
tary Byrnes agreed with that position, and they put it into Central
Intelligence Authority, which is the predecessor of the CIA.

Senator Welker. Mr. Panuch, you are giving us some very valuable
information and testimony here.

Now, I will ask you this question :

Who were the people who tried to bring about this further change ?

Mr. Panuch. You mean in the intelligence field, sir?

Well, the plan was the plan of Mv. George Schwarzwalder in the
Bureau of the Budget, and they induced Mr. Alfred McCormack, who
had been Colonel McCormack in the Military Intelligence Service in
the War Department, to head up the intelligence operation in the
State Department as Special Assistant to the Secretary for Intelli-
gence. He had as his deputy, I believe, a Mr. Finan, who was from
the Bureau of the Budget.

Senator McCarran. How do you spell that name?

Mr. Panuch. F-i-n-a-n

Senator Welker. Mv. Panuch, did the establishment of the NIA in
January of 1946 cause the defeat of this plan?

Mr. Panuch. You mean the Central Intelligence Agency?

Senator Welker. Yes.

Mr. Panuch. Yes, sir; it did.

Senator Welker. Was this plan ever reinstated ?

Mr, Panuch. No, sir.

Mr. Morris. Mr. Chairman, at this point I would like to offer for
the record some docmnents here which relate to the testimony that
Mr. Panuch will now give, the forthcoming testimony.

The Chairman. All right.

Mr. Morris. Mr. Panuch, will you identify the next document in
sequence there ?

Mr. Panuch. Number 5?

Mv. Morris. Yes.

Mr. Panuch. As I have testified, the issue on the intelligence or-
ganization was one that was very hotly debated, not only in the De-
partment but in the press, and the usual psychological warfare and in-
fighting took place, and this was argued on numerous occasions in the
staff committee presided over by the Secretary, with as much for-
mality as a Supreme Court argument.

I have before me the exhibit 5, a brief of Mr. McCormack's argu-
ment in support of the plan.

INIr. Morris. That is an official document?

Mv. Panuch. That is a copy of an official document of the Depart-
ment.

32918°— 53 — pt. 13 3

856 INTERLOCKING SUBVERSION IN GOVERNMENT

Mr. Morris. Mr. Chairman, may that particular document go into
the record?

The Chairman. It may go into the record and become a part of the
record.

(The document referred to was marked "Exhibit No. 264" and
follows:)

Exhibit No. 264

SC-185, Februaey 12, 1946.

Secretaky's Staff Committee— Permanent Location and Organization of the
Office of Research and Intelligence

THE problem

The Departmental Order attached as Annex I established the Office of Re-
search and Intelligence on January 1, 1946, but provided that the Otlice "is
established temporarily for the period January 1 through February 28, ,1948,"
and that. a final decision on the ultimate location and organization of that Office
would lie made by the Secretary on or before March 1, 1946. This paper is
intended to be the basis of recommendations to the Secretary as to what the
decision should be.

recommendation

It is reconnnended :

(1) That the location of the Office of Research and Intelligence remain
under the Special Assistant for Research and Intelligence.

(2) That the Office of Research and Intelligence remain organized as at
present.

(3) That the intelligence research functions of the Division of American
Republics Analysis and Liaison be transferred to the Division of American
Republics Intelligence.

BACKGROUND

1. A chronological statement of the developments leading up to the present
issue is attached as Annex II and is summarized below.

2. The Department's intelligence program, upon which was based the October
1, 1945, transfer to the Department of tlie Research and Analysis Branch and
the Presentation Branch of the former OSS, was predicated upon the estab-
lishment under a Si)ecial Assistant to the Secretary of a single organization
which would "be responsible for the collection, evaluation and dissemination of
all information regarding foreign nations." The Secretary specifically approved
the creation of such an organization.

3. One of the stated objectives of the Department in thus centralizing its in-
telligence activities was to "free the operating offices of the intelligence func-
tion and thus relieve them of a very considerable burden '. This was to be one
of the "first steps in the reorganization of the Department to meet its expanding
responsibilities."

4. The last quoted statement was contained in a press release by the Acting
Secretary, announcing the appointment of a special assistant for Research and
Intelligence. The press release also stated :

"There will also be transferred to the permanent offices, under (the Special
Assistant's) direction, appropriate units already existing within the present
structure of the Department of State."

5. Upon taking office the Special Assistant for Research and Intelligence was
directed by the Acting Secretary to conduct a survey of OSS and Departmental
activities, in order to arrive at a program which would

"Coordinate the units within OSS which we wish to retain and the units of
the Department of State now participating in intelligence activities, so that, by
January 1, all intelligence activities within the Department will be under your
own control * * *."

6. The directive further stated :

"The steps which I have directed in this memorandum will have the effect of
uniting and consolidating the intelligence activities of this Department."

7. Not until October 27, 1945, was there evidence of a difference of opinion
within the Department as to the method of organizing its intelligence activities.
At that time, and on several subsequent occasions, the proposal has been made

INTERLOCKING SUBVERSION IN GOVERNMENT 857

that the best way of equipping the functional and geographic offices to meet their
"expanding responsibilities" is not to free them of the intelligence function but
to enlarge the staff of each of them by adding a unit to perform the intelligence
research work affecting their respective areas or fields.

8. There has been no disagreement regarding the centralization of intelligence
collection facilities and certain intelligence research facilities. There are, how-
ever, varous opinions regarding the extent to which the research functions as-
signed by the Departmental Order (Annex I) to the regional intelligence divi-
sions should be centralized.

ISSUE NOW PRESENTED

1. The chart attached as Annex III is intended to show the steps involved in
production of an intelligence report. It also shows the present organization of
the Offices under the Special Assistant for Research and Intelligence.

2. An alternative form of organization has been proposed by the Geographic
Offices and is set forth in the memorandum attached as Annex IV. Briefly, that
proposal would divide up the personnel of the Office of Research Intelligence
divisions and distribute most of them to the geographic offices, substituting for
ORI an "Office of Research Coordination" with the following functions :

(a) To establish and maintain standards of research and analysis through-
out the Department.

(6) To formulate, in consultation with geographic offices, a Departmental
program for basic research, and to coordinate and stimulate its execution.

(d) To maintain a central clearing house of information regarding re-
search studies prepared or planned anywhere in the Department.

(e) To maintain liaison with other agencies of the Government, and with
private institutions, for the purpose of utilizing all possible research re-
sources to meet the Department's needs.

if) To conduct specialized research on economic or other technical sub-
jects.

ARGUMENT

1. The first argi;ment for separating the intelligence function completely from
operating and polic.y functions is one of principle. Intelligence research is fact
finding. It requires independence and integrity of judgment, perspective and ob-
jectivity— qualities that thrive only in the most favorable environment.

2. Separation of the fact finder from involvement in policies and objectives is
not only a firm and time-honored doctrine of those organizations having most
experience in the conscious pursuit of intelligence work — the Armed Forces of
this and other nations ; it is also fundamental in our institutions of government.
The administration of justice depends on fact finding devices, supported by a
complex of rules and practices (such as those governing the selection and func-
tioning of juries) which aim to prevent the fact finders from the influence, con-
scious or unconscious, of policy, prejudice or any interest in the result of the fact-
finding process.

3. In cases where the fact finder has additional functions, as with the equity
judge, the law demands a rigid separation of the functions and a clear statement
of the determinations of fact, and provides an impartial I'eview of the findings on
appeal. In modern administrative law, the most serious and controversial issues
turn on the need for protecting (and the great difficulty of protecting) the fact
finder from the bias, generally unconscious, that comes from commitments to
policy or an interest in objectives.

4. Students of government have frequently dealt with this subject. The danger
of combining research functions with oi)erational and policy functions was dis-
cussed by Walter Lippmann long ago, in his Public Opinion, and the following
conclusion was stated :

"The only institutional safeguard is to separate as absolutely as it is possible
to do so the staff which investigates. The two should be parallel but quite
distinct bodies of men, recreated differently, paid if possible from separate funds,
responsible to different heads, intrinsically uninterested in each other's personal
success."

5. In England the Committee on Ministers' Powers, in its comprehensive jeport
published shortly before the war, arrived at the same general conclusion and laid
great stress on the need for independent fact finding. The committee argued that

858 INTERLOCKING SUBVERSION IN GOVERNMENT

a high-minded man could make an impartial determination in the face of a
pecuniary interest but that he could rarely do so in the face of a sincere convic-
tion on policy.

6. During the recent agitation for a central inter-departmental intelligenc.
agency, it was frequently stated that an independent, nondepartmental intelli
gence organization is required because the departments are not impartial reporter-
of facts but are influenced by their individual objectives and policies, and tend
to report or withhold information, to emphasize or deemphasize it, according to
whether it does or does not serve departmental purposes.

7. Whether that charge be valid or not, it is submitted that independence of
thought and an unbiased approach to facts will be more likely, according tn
common experience, if the intelligence unit confines itself to the intelligenci
function and is directed by officers who also confine themselves to that function

8. Independent of thought and an unbiased approach to facts are not qualitir
that an organization acquires merely by willing to have them. Even in a groiu.
devoted wholly to factual research, the specialist will tend to overrate the im-
portance of his own svibject, to get committed to conclusions, and to acquire
preferences, prejudices, and doctrines. To combat and neutralize those ten-
dencies is a function of supervision, a continuing function that must be per-
formed day in and day out, by whatever organizational devices are appropriate,
including establishment of work priorities, allocation of personnel to specific
tasks, and provision of adequate means for review of studies and reports for
objectivity, perspective, and balance, as well as factual content. Effective super-
vision along those lines would be impossible in an organization broken up and
divided among four or more separate offices.

9. That leads to the next argument, which is that the geographic offices are
not qualified by training or experience to operate or supervise intelligence re-
search work. Supervision of research on any scale is a professional job. On
the scale required to meet this Department's needs it is a professional job for
a highly skilled supervisory organization, and not merely for an individual.
The geographic Intelligence Divisions are not self-contained units that can be
shifted around in the Department without impairing their effectiveness. They
are directed from the office of the Director of ORI, which passes on. their work
before it comes out, ties the several divisions together, insures that all appro-
priate regional and functional specialists have contributed to the result, and
in general performs the functions of management. The geographic offices are
not equipped, and cannot equip themselves, to perform those functions.

10. But even assuming that research could be supervised adequately in the
geographic offices, and that it would produce intelligence unaffected by the policy
commitments of those offices, decentralization would still impair the effectiveness
of the present oi'ganization and be wasteful and inefficient.

11. A centralized Office can provide specialists on subjects of interest to a
number of offices in the Department, no one of which could justify their employ-
ment in its individual research unit. Centralized control of positions and of
assignments of personnel can assure that there is no more than a single specialist
or group for each aspect of intelligence. With a single research organization
it is possible to establish and maintain clear-cut guides and procedures for dis-
tribution of incoming intelligence data and a single library and reference service —
indexed collections of documents, maps, photographs, books, etc. With many
scattered research units the distribution problem would be exceedingly complex
and centralization of reference files would be impracticable.

12. A decentralized organization would be inflexible and slow to respond to
emergencies, which under present arrangements are met by promptly shifting
personnel to the most urgent work. The proposal of the geographic offices, recog-
nizing that many intelligence problems (if not most of them) go beyond the
area or functional responsibility of any one geographic office, provides for an
Office of Research Coordination which, among other duties, would "organize
and supervise cooperative projects in research cutting across the lines of the
geographic ofiices."

13. But the kind of supervision that is required to meet the objectives stated
in the proposal of the geographic offices (including the establishment and mainte-
nance of standards of research and analysis throughout the Department) involve
command — day-to-day supervision of the personnel engaged in research and
analysis. It involves hiring and firing ; determining what personnel will do
what jobs, what kind and amount of direction they will have and what checks
their work will be subjected to. Without control of personnel, the establish-
ment of standards, the coordination of a research program, the supervision of
projects cutting across geographic lines could not be performed effectively.

INTERLOCKING SUBVERSION IN GOVERNMENT 859

14. An analysis of the work done on political problems by ORI and predeces-
sor organizations would demonstrate that in one important respect the typical
project goes beyond the field of the geographic office, in that economic as well
as political subjects are involved. Dismemberment of the research organization
would increase the difficulty of studying and presenting all aspects of a problem.
Centralization not only makes that easier but it provides a imifying influence
as between the Political and Economic Offices within the Department, giving
them a common body of knowledge on subjects of mutual interest.

15. Not only does ORI serve the economic, cultural, and information offices
and the Office of Special Political Affairs, as well as the geographic offices, but
in two other respects its interests go beyond the immediate concerns of the geo-
graidiic offices. First, ORI is interested in long-term basic intelligence, which
the geographic offices do not ordinarily require in their day-to-day operations;
second, it has the function of keeping track of specialized intelligence (such as
military intelligence) to a suflBcient degree to keep the Department informed
and to assess the reliability of what the specialized intelligence organizations
turn out.

IG. The organization now known as ORI has functioned as a unit for over 5
years. Wliile it is divided for administrative purposes into geographic and
functional parts, those parts are interdependent and clo.sely linked together.
'They share a common flow of incoming information, common files and common
objectives and standards. Cross-divisional project teams are employed on a
large part of the work. The organization has an esprit de corps which Is a
considerable factor in its efficiency, and which has enabled it to survive the
innumerable difficulties of the last six months.

17. To break up such an organization, upon the assumption that its component
parts would still function after dismemberment, is at least dangerous. Apart
from loss of efficiency from other causes, it is believed that many of the key
personnel, whom it has been hard to retain because of competing offei-s of uni-
versity jobs with a high degree of security, would quit. The opinion among
them seems to be unanimous that to dismember the organization would be to
destroy it.

18. It is important that the issue be decided promptly, since the present state
of suspense has caused serious moral problems. It has also caused two of the
best men in the immediate office of the Special Assistant for Research and In-
telligence to announce their resignations, effective within the next three months.
It has seriously impaired our recruiting program. A consultant for the Federal
Reserve Board, one of the best informed men on Russian economics, had agreed
to join ORI but now refuses to do so until assured that the organization will
survive as a unit. In a similar position ai'e four very able intelligence officers
who have been or who are lieing discharged from the Army, all of whom had
previously agreed to come into the Department, at the sacrifice of exceptionally
good opportunities in private employment. One of these men has now been lost
for good, having been appointed to public office in his home state. ORI reports
that its program for recruiting qualified junior research personnel is at a stand-
still because it can give no assurance of permanency of tenure.

10. In considering the immediate problem, it should be borne in mind that
setting up an adequately staffed oflice of Special Assistant for Research and
Intelligence and putting the two subordinate OflSces and their divisions on a
permanent basis are only the first steps toward the Department's proper ob-
jectives in the field of foreign intelligence. The problem of correlating the
Departmental intelligence organization with the establishments of the Foreign
Service abroad or for developing a reporting program to meet the intelligence
needs of the Department have not yet been touched. No adequate machinery has
even been set up within the Department for insuring that the Department's for-
eign information will flow into ORI. No real progress has been made toward
coordinating the Department's intelligence activities with those of other agencies,
although that job will now become urgent by reason of the creation of the
Central Intelligence Group.

20. Further, although the original directive to the Special Assistant called
for creation of an Office of Security Intelligence (counterintelligence), no steps
in that direction have been taken, because of successful passive resistance within
the Department. As a result, in the discussions which are about to begin with
the Central Intelligence Group on the postwar organization of security intelli-
gence, the Department is in the position of not having studied the problems and
therefore having no policy, though the matter is of special interest because, out-
side occupied areas, the security intelligence personnel (whether X-2 or FBI)
operate under State Department cover.

860 INTERLOCKING SUBVERSION IN GOVERNMENT

21. This Department unsuccessfully advanced a proposal for coordination
of foreign intelligence activities under a plan that would have given the Depart-
ment a role in foreign intelligence, consistent with its responsibility for the
conduct of foreign affairs. Possibly it is fortunate that the proposal was not
accepted, because at this time the Department is not equipped to assume a pri-
mary role in foreign intelligence. If, however, it is a sound proposition that
the Department of State is the appropriate coordinating agency in all matters
concerning foreign affairs, including the collection of information and the dis-
semination of foreign intelligence (most especially the information on which
the President takes action), then tlie Department should fit itself to assume that
role. In order to do that, it must not only preserve an effective research unit,
and give it more support than it has received to date, but it must go on to de-
velop a reporting program for its offices abroad that will meet the intelligence
needs of the Department, including assignment to the field of research and
specialized reporting i)ersonnel when they are required. It must also participate
fully in the development of a governmeutwide intelligence program and talie its
proper share of the responsibilities under that progi-am.

22. It is submitted that the proposal to dismember the research organization
is unsound in principle ; that it would result in waste and inefficiency ; and that
it would defeat the objective of putting the State Department in its proper role
in foreign intelligence.

23. If the present organization of ORI is to continue, there is one conflict
of jurisdiction within the Department to be ironed out, viz, between the Divi-
sion of American Republics Analysis and Liaison and the Division of American
Republics Intelligence. The former division, imder ARA, purports to do intelli-
gence worli falling within the description of that assigned to ORI. This appears
to be the only situation of its kind within the Department and, in the interest
of orderly organization, should be eliminated if the present organization of ORI
is continued.

(Annex I omitted.)

Annex II. Chronological History of Developments in Connection With
Plans for Organizing Intelligence Research in the Department

1. On September 20, 1945, the President issued Executive Order No. 9621,
effective October 1, 1945, which —

"transferred to and consolidated in an Interim Research and Intelligence Service,
which is hereby established in the Department of State, (a) the functions of
the Research and Analysis Branch and of the Presentation Branch of the Office
of Strategic Services * * * excluding such functions performed within the
countries of Germany and Austria * * *."

The Order further provided :

"The Interim Research and Intelligence Service shall be abolished as of the
close of business December 31, 1945 * * *. Pending such abolition, (a) the
Secretary of State may transfer from the .said Service to such agencies of the
Department of State as he shall designate any function of the Service, (ft) the
Secretary may curtail the activities carried on by the Service, (c) the head of
the Service, who shall be designated by the Secretary, shall be responsible to
the Secretary or to such other officer of the Department of State as the Secre-
tary shall direct, and (d) the Service shall, except as otherwise provided in
this order be administered as an organizational entity in the Department of
State."

2. Also on September 20 the President addressed a letter to the Secretary of
State in which he stated :

"I have today signed an Executive Order which provides for the transfer to
the State Department of the functions, personnel, and other resources of the
Research and Analysis Branch and the Presentatioq Branch of the Office of
Strategic Services * * * effective October 1, 1945.

INTERLOCKING SUBVERSION IN GOVERNMENT 861

"I particularly desire that you take the lead in developing a comprehensive
and coordinated foreign intelligence program for all Federal agencies con-
cerned with that type of activity * * *"

3. On September 27 the Acting Secretary of State announced the appoint-
ment of a Special Assistant to the Secretary of State in charge of Research
and Intelligence. In the announcement it was stated :

"* * * the Research and Analysis Branch and the Presentation Branch of the
OflSce of Strategic Services will be transferred to the State Department effective
as of October 1, 1945. These two branches will be immediately organized as an
interim office in the Department, with [the Special Assistant] in charge. Shortly
thereafter, such permanent offices as may be necessary for the creation of a
strong intelligence unit, ordered by the President, will be established and placed
under [the Special Assistant's] direction. Between October 1 and January 1,
when the interim office will pass out of existence, the permanent offices will
absorb such functions and personnel of the two Office of Strategic Service
branches which the Department of State desires to retain.

"There will also be transferred to the permanent offices, under [the Special
Assistant's] direction, appropriate units already existing within the present
structure of the Department of State.

"[This action is among] the first steps in the reorganization of the Depart-
ment to meet its expanding responsibilities. It should be emphasized that this
reorganization will be worked out gradually one step at a time and will not take
the form of numerous changes to be announced simultaneously. As further
changes are made, specific announcements regarding each individual change will
be made to the public."

4. On October 1, 194.5, the Acting Secretary issued a directive to the Special
Assistant for Research and Intelligence which contained the following :

"At the time when we were communicating with the Secretary of State in
London regarding the establishment of an intelligence agency within the State
Department, I sent him a message from which the following is an excerpt :

" 'The Special Assistant and his organization would be responsible for the col-
lection, evaluation and dissemination of all information regarding foreign
nations. These functions are now spread throughout the Department. To
unite them in one organization, which would become the Department's encyclo-
pedia, would free the operating offices of the intelligence function and thus relieve
them of a very considerable burden. Intelligence would furnish the data upon
which the operating offices would determine our policy and our actions. * * *'

"Since the Secretary concurred in these general principles, and since the Presi-
dent has signed the Executive Order, the excerpts which I have quoted can well
serve as the general basis of a dii-ective for you as Special Assistant to the
Secretary for Research and Intelligence.

"It is desired that you take the following steps towards the creation of your
intelligence unit :

"2. Establish a board consisting of Mr. Lyon, and such other representatives
of the Department of State and OSS as you consider appropriate, for the purpose
of surveying those parts of OSS which have been, or will be, transferred to the
Department of State for the purpose of advising you which parts of OSS we wish
to retain beyond January 1 and which parts we wish to dissolve at that time.

"3. Have the board conduct simultaneously a survey of those organizations
within the present structure of the Department of State which are presently en-
gaged in intelligence activities, for the purpose of advising you which of these
organizations should be transferred to your own intelligence agency between
now and January 1.

"4. Consolidate the units within OSS which we wish to retain and the units of
the Department of State now participating in intelligence activities so that, by
January 1, all intelligence activities within the Department will be under your
own control. * * *

"The steps which I have directed in this memorandum will have the effect of
uniting and consolidating the intelligence activities of this Department. * * *"

5. In compliance with the directive of the Acting Secretary, on October 11,
1945, the Special Assistant requested various offices of the Department to

862 INTERLOCKING SUBVERSION IN GOVERNMENT

designate representatives to serve as members of an Intelligence Advisory Board.
The following were so designated :

Sherman Kent, Chairman, SA-Mc

George Allen, NEA

John Dreier, ARA

Elbridge Durbrow, EUR

Wm. F. Finan, SA-Mc

Haldore E. Hanson, A-B

Fredericli B. Lyon, CON

Stanley McKay, MN

Harlev Notter, SPA

J. K. Penfield, FE

Willard K. Thorp, A-C

6. The Intelligence Advisory Board held its first meeting on October 19, 1945,
at which time arrangements were made for each member of the Board to
obtain from his Office a statement of its intelligence requirements and otherwise
to assist members of the Special Assistant's staff in the planning of the Depart-
ment's intelligence program.

7. On October 23, 1945, the House of Representatives passed and sent to the
Senate H. R. 4407, which provided for rescission of certain OSS appropriations,
leaving an unexpended balance of such appropriations insufficient for the con-
tinued functioning of the OSS units transferred to the Department of State. As
a result, it was necessai-y for the Special Assistant to prepare a supplemental
budget estimate for the Intelligence Offices. Upon submission of that budget esti-
mate the Assistant Secretary for Administration raised the question of whether
the intelligence research of the Department should not be done on a decentralized
basis (in the various functional and geographic offices) instead of on a centralized
basis as contemplated in the budget estimate.

8. To dispose of the issue thus raised the Under Secretary held a meeting in
his office on October 27, 1945, at which the functional and geographic offices were
represented, as well as the Assistant Secretary for Administration and the
Special Assistant for Research and Intelligence. After considerable discussion it
developed that the Assistant Secretary for Administration and the Assistant Secre-
tary for American Republic Affairs favored a decentralized intelligence organiza-
tion, while all others present either favored, or were prepared to go along with, a
centralized intelligence organization.

9. The matter was then presented to the Secretary of State who approved the
budget, covering the period ending June 30, 1946, which provided for a centralized
intelligence organization.

10. On November 29, 1945, the Assistant Secretary for Administration appointed
the following as a working group to prepare a detailed plan for establishing the
permanent Intelligence Offices, for submission to the Intelligence Advisory Board :

George V. Allen, NEA (representing the Geographic Offices)

Amory H. Bradford. SA-Mc

Kermit Gordon, CP (representing the Economic Offices)

Sherman Kent, IRIS

John F. Killea. SA-Mc

Stanley McKay, MN

David H. Scull. MN

11. On December 12, 1945, the working group submitted a report to the Intel-
ligence Advisory Board, which had been increased to provide for representation
of each Economic Office, the Office of Foreign Service, and the Divisions most
affected by the transfers proposed by the working group. The report consisted
of (1) a proposal, recommended by a majority of the working group, for a
centralized intelligence organization, together with a detailed statement of the
planned organization, and (2) an alternative proposal, submitted on behalf of the
Geographic Offices of the Department, for an intelligence organization in which
collection facilities and certain research facilities would be centralized but the
principal intelligence research would be decentralized to the Geographic Offices.*

1 Decentralization of both political and economic research was proposed on behalf of
the Geographic Offices at a December 19, 1945, meeting of the Intelligence Advisory Board.

INTERLOCKING SUBVERSION IN GOVERNMENT 863

12. On December 19, 1945, the Intelligence Advisory Board met to consider
the report of the working group. Present were : "

Sherman Kent, Chairman, IRIS
George V. Allen, NEA
Samnel W. Bogg.s, GE
Richard F. Cook, TRC
John C. deWilde, ESP
John G. Dreier, ARA
Elbridge Dnrbrow, EUR
William F. Finan, Sa-Mc
Andrew B. Foster, OFS
Kermit Gordon, ITP
Haldore E. Hanson, A-B
Federick B. Lyon, CON
Harley A. Notter, SPA
Jacques J. Reinstein, OFD
Arthur Ringwalt,' FE
David H. Scull,' MN
E. Wilder Spaulding, RP

13. The Intelligence Advisory Board agreed that the objective of any plan of
organization should be to meet the recognized need for improved research and
intelligence service within the Department but could not agree on the extent to
which the research and intelligence functions should be centralized. The Board :

(a) Voted 9 to 8 (with the Chairman breaking a tie vote) in favor of the
following motion :

"The Board considers that the establishment of a central research and
intelligence organization within the framework of the Directive of October
1st, issued by the Under Secretary, will best meet the needs of the Depart-
ment of State for research and intelligence work."

(ft) Recommended that an Office of Research and Intelligence be estab-
lished, to meet the administrative problem created by the termination of
IRIS on December 31, 194,5, but that the question of a permanent intelligence
research organization be made a matter of further study, and that the Intelli-
gence Advisory Board be kept in existence for that purpose.

14. The Advisory Board's reconuuendations were transmitted to the Special
Assistant for Research and Intelligence.

l.j. On December 28, 1945, the Assistant Secretary for Administration invited
certain of the A.ssistant Secretaries or their representatives, together with cer-
tain selected officers of the Geographic Offices, to meet in his office for a dis-
cussion of the proposed intelligence organization. The group was in agreement
regarding the centralization of intelligence collection activities and certain
research activities (maps and biographical intelligence) but expressed widely
divergent opinions regarding the functions proposed by the Special Assistant for
Research and Intelligence for the geographic intelligence divisions.

16. On January 5, 1946, the Secretary directed that "the organization pro-
posed by the Special Assistant to be adopted temi)orarily upon the express
understanding that a final decision on the ultimate location of the Office of
Research and Intelligence will be made on or before March 1st."

(Annex III omitted.)

2 Also present were Mr. Just Lunning, Board Secretary ; Messrs. Bradford and Killea,
members of the workinc; group ; and Messrs. Heacoek and Grilley of FR.
■'' For Mr. James K. Penfield.
* For Mr. Stanley McKay.

32918°-

864 INTERLOCKING SUBVERSION IN GOVERNMENT

Annex IV. Form of Inteixigence Organization Proposed by the Geographic

Offices

The Geographic Offices feel an urgent need for better research and intelligence
work in the Department. They welcome the opportunity now afforded for the
realization of this much-needed improvement.

The Geographic Offices are of the view, however, that research activities in
the Department of State, except for a relatively small general research group,
mugt be tied organizationally with operations in order to be of real value. Our
experience has been, both in connection with the work of the Research and
Analysis Branch of OSS and the Territorial Studies Division of the State Depart-
ment, that the great amount of outstanding talent which was amassed in those
groups for research and intelligence work was by no means adequately utilized
and was even to a considerable extent wasted. Both of these groups were or-
ganized during wartime, when any amount of effort and experience was consid-
ered justified as long as one report out of fifty could be translated into action.
Continued waste of talent on the scale established during the war cannot be
gustified, particularly when fuller utilization is entirely feasible. The work of
nearly one thousand i)ersons now proposed for research and intelligence work of
the Department can be made useful, and barren efforts avoided, if a good part
of the personnel is integrated closely with the operating offices of the Department.

Moreover, if the research jjersonnel is retained in a central organization, a
difficulty more serious than wasted talent is likely to result. To retain able
research men, they must be given a voice in recommending policy. Those now
being brought into the Department should be given such a voice. But the policy
recommendations of a research unit which is not organizationally integrated
with operations are very likely to be theoretical judgments with little basis in
reality. Policy, to be sound, must be based on the closest contact between day-
to-day operations and good basic research.

It will hardly be argued that policy recommendations from two points of view,
operations and research, would be useful to the executive officers of the Depart-
ment in making their policy decisions. Not only do the executive offices have
no time to devote to selection, but more, important, recommendations based
either on operations or research exclusively are bad, and two bad policy recom-
mendations are not useful material from which to make a good selection. What
is needed is a linking of operations and research in the closest feasible manner.
We are convinced through experience and judgment, that this can never be done
as long as the two branches are organizationally separate.

Tlie Geographic Offices propose that research and intelligence in the Depart-
ment be organized as follows :

1. The Offices of Intelligence should include :

(fl) Office of Security.

(6) Office of Intelligence Collection and Dissemination.

2. Each Geographic Office should maintain a Division of Research organized
with geographic sections corresponding to the other Divisions of the Office.

3. Functions of the Office of Research Coordination would be :

(a) To establish and maintain standards of research and analysis
throughout the Department.

(6) To formulate, in consultation with Geographic Offices, a Departmental
program for basic research, and to coordinate and stimulate its execution.

(d) To maintain a central clearing house of information regarding re-
search studies prepared or planned anywhere in the Department.

(e) To maintain liaison with other agencies of the Government, and with
private institutions, for the purpose of utilizing all pos.sible research re-
sources to meet the Department's needs.

(f) To conduct specialized research on economic or other technical
subjects.

4. Functions of geographic research divisions in Geographic Offices.

( (I ) To act generally as research and analysis body for geographical
division.

( ft ) To prepare any necessary current situation reports on political
conditions.

(d) To study and report (m specific problems as requested by geographical
division, or on own initiative with concurrence of geographic divisions.

INTERLOCKING SUBVERSION IN GOVERNMENT 865

Mr. Morris. What is the next document?

Mr. Panuch. The next document, No. 6, is our answer and brief to
Mr. McCormack's brief, in which we argue that the plan is disastrous,
and should not be put into effect.

The Chairman. It may go into the record and become a part of
the record.

(The document referred to was marked "Exhibit No. 265" and
follows:)

Exhibit No. 265

A-R, February 25, 1946.
The Secretary :

1. I transmit herewith my report and recommendations with respect to Staff
( 'ommittee Document No. SC-1S5, entitled "The Permanent Location and Organ-
ization of the Office of Research and Intelligence".

2. According to your directiA-e of January 5, 1946, the issue Involved is to be
finally determined by you on or before March 1, 1946.

Donald Russell.
I. Introductory

On 12 February 1946 the Special Assistant for Research and Intelligence sub-
mitted to the Secretary's Staff Committee Document SC-185 entitled "Permanent
Location and Organization of the Office of Research and Intelligence" (ORI).
P>y direction of the Secretary, this document was referred to the Assistant Sec-
retary for Administration for consideration and clearance, in accordance with
Departmental Order No. 13.j6 (Tab A).

This paper involves an issue on which there is an irreconcilable difference
of opinion in the Department. The issue is whether, as the Special Assistant
contends, the intelligence activities of the Department shall be centralized —
that is, organized outside of, and not accountable to, the policy offices of the
Department, or whether, as held by Assistant Secretaries Dunn and Braden, such
activities, to the extent necessary, shall be integrated with, and made respon-
sible to, the Offices of the Department charged with policy development and
formulation.

11. Prior History of Controversy

1. ORIGIN

On 20 September 1945 the President approved the Bureau of the Budget's plan *
for the organization of the overt and secret foreign intelligence activities of the
Government. This plan called for the Departmentof State to assume the initia-
tive in launching the iTrogram through a system of interdepartmental committees
composed of representatives of agencies concerned with intelligence. As a first
step towards implementation of the plan, the President, on 20 September, signed
Executive Order 9621 transferring to the Department of State as of 1 October
1945 the functions, personnel and resources of the Research and Analysis Branch
of the Oftice of Strategic Services. Concurrently, the President issued a direc-
tive to the Secretary of State, dated 20 September (Tab B), wherein he said, in
part:

"The above transfer to the State Department will provide you with resources
which we have agreed you will need to aid in the development of our foreign
policy, and will assure that pertinent experience accumulated during the war will
be preserved and used in meeting the problems of peace. Those readjustments
and reductions which are required in order to gear the transferred activities
and resources into State Department operations should be made as soon as
practicable.

"I particularly desire that you take the lead in developing a comprehensive
and coordinated foreign intelligence program for all Federal agencies con-
cerned with that type of activity. This should be done through the creation of
an interdepartmental group, heading up under the State Department, which
would formulate plans for my approval. * * *"

1 Intplligenee and Security Activities of the Government, Bureau of the Budget,
September 20, 1945.

866 INTERLOCKING SUBVERSION IN GOVERNMENT

2. PKOBLEMS CREATED BY THE PRESIDENT'S DIEECTTVE

The President's directive confronted the State Department with two serious
problems.

(a) How to absorb the resources transferred from OSS within the framework
of the Department's organizational structure.

(6) How to launch a complex program for the organization and coordination
of National overt and secret foreign intelligence activity on an interdepartmental
committee basis without the support of the War and Navy Departments and the
Joint Chiefs of Staff.

The Department was relieved of the second problem when it became obvious
that the plan to organize a National foreign intelligence program through the
interdepartmental committee mechanism was impracticable. Accordingly, this
mission was assigned to the National Intelligence Authority, established by
the President's directive of 22 January 1946.

With respect to the first problem, the transfer of functions and personnel of
the Research and Analysis Branch of OSS to the State Department developed
into a bitter and irreconcilable difference of opinion as to the scope of the
intelligence function and its proper functional relationship to the work of the
Department as a whole.

This issue was presentefl to and extensively argued before A-R on 28 December
1946. On 29 December A-R submitted to the Secretary his recommendations
with respect to the determination of the controversy. Because of the Secretary's
imminent departure for London, he withheld final decision and stated in his
directive to A-R of 5 January 1946 :

"* * * The proposal of the Special Assistant for Research and Intelligence
involves fundamental changes in the organization of the Department * * *.

"I wish the organization proposed by the Special Assistant to be adopted
temporarily upon the express understanding that a final decision on the ultimate
location of the Ofl5ce of Research and Intelligence will be made on or before
March 1st."

III. Basic Ei^ementb of the Problem

In approaching the organizational problem presented by SC-185, some basic
considerations should be borne in mind. These are three: (1) The Presi-
dent's objectives; (2) the character of the intelligence function; (3) the nature
of the Department's intelligence requirements.

1. THE PRESIDENTIAL OB.IECTIVES

The President's purpose in transferring OSS research resources to the Depart-
ment was: "* * * to aid in the development of our foreign policy. * * *" The
directive did not envisage, much less require, that the personnel and functions
transferred from OSS would be grafted on the Department without due regard
to its organizational structure. Indeed, the President's letter contemplates a
careful meshing, to wit :

''Those readjustments and reductions which are required to gear the trans-
ferred activities and resources into State Department operations should be made
as soon as practicable." [Emphasis supplied.]

2. THE FUNCTION OF FOREIGN INTEIXIGENCH

Foreign intelligence is defined in the ORI charter as "evaluated, positive
Information on foreign countries as an aid to the formulation and implemen-
tation of foreign policy." Since the State Department is the principal foreign
intelligence agency of the Government, the transfer of the OSS functions does
not present the problem of how a new function is to be conducted. The ques-
tion is the manner in which the personnel and facilities transferred are to be
assimilated in a going concern so as to augment its total resources without
disrupting its organization and throwing its operations into confusion. In this
respect, the Bureau of the Budget report, on which the President's directive of
20 September was based, lays down this controlling principle as to the situs of
intelligence activities, at p. 9 :

"The intelligence operation is handmaiden to the actionrtaking and policy-
determining groups. It must be sensitive to their needs. It must have handy
the mass of original documents and material on which its studies are based.
While it may secure much assistance from others outside, it must be responsible
to the place of decision. A department which will be held responsible for its
decisions and actions must, in turn, be able to hold accountable to it the operation

INTERLOCKING SUBVERSION IN GOVERNMENT 867

which produces intelligence on which those decisions and actions will, in part,
he based." [Emphasis supplied.]

The State Department is organized along geographic and functional lines.
The geographic and economic desks are "the action-taking and policy-determining
groups" in the great flow of Departmental decisions made daily. In matters
of high import, they are responsible for recommendations with respect to policy
or action on which the Secretary's decisions are based.

3. DEPARTMENTAL INTELLIGENCE REQUIREMENTS

For the purposes of this controversy, it is conceded that some strengthening
of the intelligence resources of the geographic oflBces is necessary. However, the
real problem is to coordinate and correlate the vast volume of existing intelli-
gence research. Some form of a central organization is required to coordinate
the research work of all the Offices on a departmental basis, to fix Departmental
intelligence objectives and establish uniform standards of research. Such a
central intelligence organization should also undertake:

(«) Subject to appropriate instructions and policy controls, the representa-
tion of all interested elements of the Department on the technical staff of the
National Intelligence Authority.

(&) In cooperation with the geographic and economic offices, the preparation
of special intelligence estimates for the Secretary and the Under Secretary and
other top-level officials of the Department and for the National Intelligence
Authority.

(f) Responsibility for the collection and dissemination of positive intelligence
produced in the Department.

IV. Analysis of Argument in Support of Centralized Intelligence

Organization

The argument presented in SC-1S5 in support of the proposal for making
permanent the tentative organization of ORI breaks down into four main
elements.

1. the OCTOBER 1ST DIRECTHT: (DOC. SC-185 — PP. 1-3)

The point is made that the centralized intelligence organization now proposed
is called for by the October 1st directive (Tab C). In calling for a centralization
of all intelligence activities of the Department, it disregarded the principle of
intelligence decentralization which was a prime tenet of the Bureau of the
Budget's intelligence organization plan on which the President's instructions to
the Secretary were based. Its proposal for the consolidation of the Department's
"positive" and "security" intelligence activities was inconsistent with the ele-
mentary principles of intelligence organization and is neither practicable nor
desirable. In any event, as the Secretary has ruled, any administrative directive
is subject to review with respect to its organizational soundness and feasibility
as provided for by Departmental Order 1356 (Tab A).

2. THE ARGUMENT FOR "INDEPENDENT" RESEAKCH (SC-1S5 — PP. 4-5)

"The first argument for separating the intelligence function completely from
oijerating and policy functions is one of principle. Intelligence research is fact-
finding. It requires independence and integrity of judgment, perspective and
objectivity — qualities that thrive only in the most favorable environment."

In snpiiort of this statement of the independence doctrine, Walter Lippmann's
Public Opinion (1921), now republished as a Pelican Book, is cited. Safeguards
thrown about the fact-finding processes of petit juries, courts of equity and
administrative tribunals are invoked as applicable analogies.

No one questions that research intelligence, to be useful, should be unbiased,
objective, and even chock-full of perspective. But, if, as asserted, such qualities
are able "to thrive only in the most favorable environment," intelligence is not
likely to flourish in the savage climate of atomic age diplomacy. Centralization
of researchers in an independent organization divorced from the impact of opera-
tions and policy is no guarantee of perspective and objectivity. Indeed, it may
even produce a theoretical or doctrinaire form of bias. The cited analogies with
respect to the complete divorcement from policy (law) of the fact-finding proc-
esses of juries, administrative tribunals and equity judges are misdirected. A
jury finds facts on instructions by the trial judge and often in the light of his

868 INTERLOCKING SUBVERSION IN GOVERNMENT

comments on the evidence. A court of equity renders findings of fact and con-
clusions of law. The same is true of most administrative tribunals. In no case
is there an insulation of the fact-finding process from the impact of policy or
principle.

3. THE INTELLIGENCE QUALIFICATIONS OF THE GEOGEAPHIC OFFICES; (SC-1S5 —

PP. 6-8 PAR. 8-15)

This argument is in the nature of ad hominem. It boils down to two propo-
sitions :

(a) "The geographic offices are not qualified by training or exi)erience to
supervise research work."

(&) "Even assuming that research could be supervised adequately in the
geographic ofiices and that it would produce intelligence unaffected by the policy
commitments of those ofiices, decentralization would still impair the effective-
ness of the present organization and be wasteful and inefficient."

This contention, aside from its lack of good taste, appears to misconceive the
true function of intelligence and evidences an unfamiliarity with the operation
of the State Department. The Secretary is responsible for our foreign policy.
That policy is determined by him on the basis of information originating with- our
missions abroad, which is screened, correlated and evaluated by the existing
geographic oflSces.

The proposed charter of ORI states that it will provide "evaluated, positive
information on foreign countries as an aid to the formulation of foreign policy
in the Department." (See Annex I, of SC-1S5, 133.20-11.) If this charter
is made permanent, we shall have ORI attempting to operate in the same field
as the regular long-established Geographic Offices. At best, the result will be
wasteful duplication of effort. More likely, it will create conditions of admin-
istrative bedlam. If the Geographic Ofiices, as claimed, are not doing the
intelligence job they are supposed to do, or if their product is biased, the solution
is to replace their personnel. The corrective does not lie in the establishment
of a competitive organization divorced from and not accountable to the offices
responsible for the formulation and development of recommendations on foreign
policy.

4. DISBUPTION OF THE ORI STAFF (SC-185 — PP. 8-10, PAR. 16-33)

It is argued that the integration of the research units of ORI with the research
staffs of the Geographic Offices of the Department will wreck a going concern
with five years of "know-how" in the intelligence field. This overlooks the fact
that there is a vast difference between the limited purpose research objectives
of OSS and the policy intelligence requirements of the Department of State.
Even if equal competence be assumed, an independent centralized research group
as contemplated by ORI would inevitably duplicate the work of the Geographic
OflSces.

During the war, duplicating organizations — particularly in the intelligence
field — were justified for reasons (sometimes valid, often not) of expediency or
by reason of emergency considerations. With the cessation of the war, a con-
tinuance of this practice is intolerable. On this point, the Bureau of the
Budget, in its report " to the President, stated at p. 13 :

"We cannot, hoiccvcr, continue a complete structure superimposed on top of
the normal structure of Gorernmenl hetjond the period when our war needs
demand it. The problem is how to capture that which is good and to integrate
it into the normal framework of the Government. Had our intelligence base
been strong when war came upon us, COI (OSS) would not have had to build
independent facilities. However, to continue such facilities in the future will
tend to perpetuate the very weaknesses that must be corrected." [Emphasis
supplied.]

The limited and special functions of a central research staff are indicated
as follows at p. 13 :

"* * * Such independent central staff' as may be required, however, can be
small, since it could rely I'ery largely on the product of research and analysis
in the departments and ivill not engage in large-scale original research and
analysis itself. Its responsibilities would be to secure and harmonize intelli-
gence, to reconcile confiicting intelligence, and as envisioned in the JIG paper

2 Intelligence and Security Activities of the Government, September 20, 1945.

INTERLOCKING SUBVERSION IN GOVERNMENT 869

already quoted to 'mobilize the resources of all agencies iu the fulfillment of an
urgent intelligence requirement.' " [Emphasis supplied.]

What applies to a central research staff such as that of the National Intelli-
gence authority is equally applicable to the Department of State.

V. CONCLUSION

In view of the foregoing, it is clear that the research intelligence activities
of the Department (other than the functions enumerated at p. 5, supra) must be
organized as a part of, and must be responsible to, the offices vrhere departmental
policy is formulated or action taken. (See Function of Foreign Intelligence,
pp. 4-5, supra. )

The organization of the Office of Research and Intelligence as presently con-
stituted is in conflict with this elementary principle of departmental organiza-
tion. In the best interests of the Department. ORI should he reorganized, its
functions redetined, and the intelligence operations of the Department should be
established in accordance with the recommendations submitted below.

VI. RECOMMENDATIONS

It is recommended that :

1. The functions of the geographic intelligence divisions of the Office of Re-
search and Intelligence (ORI) be transferred to the geographic offices of the
Department and that ORI be renamed as the Office of Intelligence Coordination
and Liaison.

2. Subject to appropriate policy control by, and the instructions of, the Stand-
ing Committee on Intelligence hereafter proposed, the Office of Intelligence
Coordination and Liaison, in collaboration with the Office of Intelligence Col-
lection and Dissemination, should perform the following functions :

(a) Represent all interested elements of the Department on the staff of the
National Intelligence Authority.

(ft) In cooperation with the geographic and economic offices, prepare
special intelligence estimates for the Secretary and the Under Secretary,
the Assistant Secretaries, and for the National Intelligence Authority.

((/) To formulate, in consultation with geographic and economic offices, a
Departmental program for basic research, and to coordinate and stimulate
its execution.

(e) To organize and supervise cooperative projects in research cutting
across the lines of the geographic and economic offices.

(/) To maintain a central clearing house of information regarding re-
search studies prepared or planned anywhere in the Department.

{{/) To maintain liaison with other agencies of the Government, and with
private institutions, for the purpose of utilizing all possible research re-
sources to meet the Department's needs.
(/( ) To conduct specialized i-esearch on economic or other technical subjects,

3. The Secretary should appoint a Standing Committee on Intelligence con-
sisting of the two Assistant Secretaries for Political Affairs, the Assistant
Secretary for Administration and the Special Assistant for Research and In-
telligence to :

(a) Supervise the establishment and coordination of Departmental in-
telligence objectives and policies.

(b) Subject to the direction and control of the Secretary, to formulate
and supervise the implementation of Departmental policy with respect to the
National Intelligence Authority.

(c) To approve participation by the Department in any centralized
operations or projects which the Director of the Authority may propose.

4. The transfer of functions, personnel and facilities envisaged in recom-
mendation (1) above should be executed in such manner as to leave the Special
Assistant with adequate resources to carry out his mission as redefined in recom-
mendation (2).

5. The phasing of the transfer and the disposition of the personnel, functions
and resources of ORI should lie left to the determination of the Assistant Secre-
tary for Administration, with due regard to the recommendations submitted by
the Special Assistant for Research and Intelligence.

6. Each geographic office shall organize and maintain a Division of Research,
set up with geographic sections corresponding to the other divisions of the office.
The establishment of such offices and the timing thereof shall be under the super-
vision and direction of the Assistant Secretary for Administration.

870 INTERLOCKING SUBVERSION IN GOVERNMENT

Department of State
Departmental Order 1356 Issued 11-7-45.

Effective 11-5-45.

CLEAKANCE OF ORGANIZATION PROPOSALS

Purpose : The purpose of this Order is to establish the procedure for consider-
ation and clearance by the Assistant Secretary for Administration of all pro-
posed changes in, or additions to, the organization of the Department and the
Foreign Service.

1. Scope : Any and all proposals with respect to

(a) The realignment of existing divisions and OflSces of the Department
and the Foreign Service ; or

(b) Changes in the functions of such Oflices or divisions as presently con-
stituted ; or

shall be cleared with the Assistant Secretary for Administration before presenta-
tion to the Secretary for approval.

2. Time for consideration : It is essential that the Assistant Secretary for
Administration be accorded adequate time for considered evaluation of all such
proposals and their administrative and budgetary implications. Accordingly,
all such proposals of major organization or budgetary significance shall be
submitted to him on ten days' notice ; at least five days' notice will be required
with respect to proposals of lesser import.

3. Authority to waive : The Assistant Secretary for Administration may waive
or modify the foregoing requirements of notice whenever, in his sound discretion,
such action appears warranted by reason of special circumstances.

James F. Byrnes.
November 5, 1945.

The White House,
Washington, September 20, 19Jf5.
The honorable the Secretary of State.

My Dear Mr. Secretary: I have today signed an Executive order which pro-
vides for the transfer to the State Department of the functions, personnel and
other resources of the Research and Analysis Branch and the Presentation
Branch of the Office of Strategic Services. The order also transfers the remain-
ing activities of the Office of Strategic Services to the War Department and
abolishes that Office. These changes become effective October 1, 1945.

The above transfer to the State Department will provide you with resources
which we have agreed you will need to aid in the develoiiment of our foreign
policy, and will assure that pertinent experience accumulated during the war
will be preserved and used in meeting the problems of the peace. Those read-
justments and reductions which are required in order to gear the ti'ansferred
activities and resources into State Department operations should be made as soon
as practicable.

I particularly desire that you take the lead in developing a comprehensive and
coordinated foreign intelligence program for all Federal agencies concerned with
that type of activity. This should be done through the creation of an inter-
departmental group, heading up under the State Department, which should
formulate plans for my approval. This procedure will permit the planning of
complete coverage in the foreign intelligence field and the assigning and con-
trolling of operations in such manner that the needs of both the individual agen-
cies and the Government as a whole will be met with maximum effectiveness.
Sincerely yours,

Harry Truman.

Memorandum for Colonel McCormack, October 1, 1945

At a time when we were communicating with the Secretary of State in London
regarding the establishment of an intelligence agency within the State Depart-
ment, I sent him a message from which the following is an excerpt:

"The special Assistant and his organization would be responsible for the col-
lection, evaluation, and dissemination of all information regarding foreign
nations. These functions are now spread throughout the Department. To
unite them in one organization, which would become the Department's encyclo-
pedia, would free the operating offices of the intelligence function and thus re-

INTERLOCKING SUBVERSION IN GOVERNMENT 871

lieve them of a very considerable burden. Intelligence would furnish the data
upon which the operating offices would determine our policy and our actions.
Sources of information would be our own field installations and those of other
departments as well as all Washington agencies and other domestic sources.
'Tnder the Special Assistant there would be two offices, one for counter-
intelligence and one for intelligence. The former would be constituted by
shifting to it those divisions now engaged in counterintelligence work but scat-
tered throughout other offices of the Department. Tliere is a pressing need for
the consolidation of these divisions, along with their personnel, files, and equip-
ment for proper exercise of the counterintelligence function. * * *

"* * * The Bureau of the Budget is prei)aring a draft of an executive order
which would transfer to the State Department two OSS units, the Research
and Analysis Branch and the Presentation Branch, with their functions, per-
sonnel, property, records, and funds. I prni);)se th;it you authorize me to con-
cur in this executive order. If it is signed, we should immediately place the
two branches in an interim office, under our Special Assistant for Research and
Intelligence. Before the first of the year we should absorb into our permanent

i intelligence structure such functions, personnel, property, and records of the

i two branches as we desire to retain. The remainder would pass out of existence
at that time."

Since the Secretar.y concurred in these general principles, and since the

j President has signed the Executive Order, the excerpts which I have quoted

j can well serve as the general basis of a directive for you as Special Assistant

1 to the Secretary for Research and Intelligence.

j It is desired that you take the following steps towards the creation of your

' intelligence unit :

1. Participate in such future discussions as may take place regarding the
disposition of those parts of OSS as are not specifically disposed of in the
Executive Order, but which may be disposed of administratively. You will
represent the Department of State in these discussions, at which I understand
representatives of the War Department and OSS will also be present.

2. Estal)lish a board consisting of My. Lyon, and such other representatives
of the Department of State and OSS as you consider appropriate, for the

j purpose of surveying those parts of OSS which have been, or will be, transferred
I to the Department of State for the purpose of advising you which parts of OSS
i we wish to retain beyond January 1 and which parts we wish to dissolve at that
I time.

3. Have the board conduct simultaneously a survey of those organizations
within the present structure of the Department of State which are presently
engaging in intelligence activities, for the purpose of advising you which of
these organizations should be transferred to your own intelligence agency between
now and January 1.

4. Consolidate the units within OSS which we wish to retain and the units of
the Department of State now participating in intelligence activities so that, by
January 1. all intelligence activities within the Department will be under your
own control.

I attach hereto a copy of a memorandum signed by the President on Septem-
ber 20, 1945. It directs the Secretary of State to "take the lead in developing
a comprehensive and coordinated foreign intelligence program for all Federal
agencies concerned with that type of activity. This should be done through
the creation of an interdepartmental group, heading up under the State Depart-
ment, which would formulate plans for my approval. This procedure will permit
the planning of complete coverage of the foreign intelligence field and the
assigning and controlling of operations in such manner that the needs of lioth
the individual agencies and the Government as a whole will be met with masiimum
effectiveness."

I understand that this memorandum was signed by the President before he
received a memorandum, also attached, which was drafted by the Joint Chiefs
of Staff. The JCS memorandum differs in some resi>ects from the President's
memorandum to the Secretary of State. In addition, it is a more detailed
document.

The steps which I have directed in this memorandum will have the effect

I] of uniting and consolidating the intelligence activities of this Department. As

■; regards the next step — that of "developing a comprehensive and coordinated

' foreign intelligence pi'ogram for all Federal agencies concerned with that type

of activity" — please make a careful and immediate study of the E'resident's

' j memorandum and the JCS memorandum and advise the Secretary of State as

to what measures he should take.

872 INTERLOCKING SUBVERSION IN GOVERNMENT

I am directing Mr. Lyon to serve temporarily as your deputy in effecting the
matters wbich I have outlined. He will also help you get established in the
Department and deal with the appropriate offices under the Assistant Secretary
for Administration in securing space, funds, et cetera.

Dean Acheson.

Mr. Morris. The next, Mr. Panuch ?

Mr. Pantjch. The next is a document No. 7, of April 24, and is
a State Department press release, which is an interchange of letters in
connection with Colonel McCormack's resignation, between Under
Secretary Acheson and himself.

The Chairman. It may go into the record and become a part of
the record.

(The document referred to was marked "Exhibit No. 266"' and
follows :)

Exhibit No. 266

Department of State

No. 275, April 24, 1946.
The Department of State today announced the resignation of Colonel Alfred
McCormack, Special Assistant to the Secretary of State for Research and
Intelligence. Colonel McCormack tendered his resignation on April 23. Acting
Secretary Acheson accepted Colonel McCormack's resignation on the same date.
The exchange of correspondence is as follows :

April 23, 1946.
The Honorable Dean Acheson,

Acting Scct-etarij of State.

Dear Mr. Secretary : The series of Departmental Orders issued yesterday,
relating to the intelligence organization within the Department, provide for
dismembering the Office of Research and Intelligence and transferring its func-
tions to a group of separate research divisions under the Political Offices, and
they contain other organizational provisions that I regard as unworkable and
unsound. I had hoped that the compromise proposal worked out by Colonel
Tyler Wood, which appeared to meet all points of substance raised by the Political
Offices, would be found acceptable, and I was therefore disappointed to find that
the orders as issued conformed almost exactly to the so-called "Russell Plan,"
proposed by the Assistant Secretary for Administration last December.

I realize how difficult it has been for the Secretary to decide an issue on which
the Department has been so divided in opinion, in view of the enormous burden
that the Secretary has been carrying. I am convinced, however, that while the
plan adopted will give needed reinforcements to the Political Offices, and in that
respect will be beneficial, it will make impossible the establishment of a real
intelligence unit within the Department ; that it will weaken the Department,
vis-a-vis the military components of the National Intelligence Authority, who
already have the advantage of a three to one representation in the Central
Intelligence Group, as compared with that of the State Department ; and that it
will prevent the carrying out of the long-range plans for postwar intelligence
which you and I had in mind when you asked me to come into the Department.

The Department must go before the Senate Appropriations Committee within
two or three weeks to present its case for restoration of the appropriations cut
made by the House of Representatives, affecting the intelligence organization.
Feeling as I do that the organization as now to be set up is unsound and not in
the best interests of the Government, I cannot conscientiously present the case
to the Senate, and I believe that the best interests of the Department and the
Government will be served by my immediate resignation.

I therefore submit my resignation, with the request that you release me at
once. It is my hope that, by replacing me with a man who has not been a party to
the internal differences of the past six months, the Department may contrive in
some way to salvage the intelligence organization which it took over from the
Office of Strategic Services. In spite of serious losses of personnel and many other
difficulties that it has encoimtered since October 1, 1945, it is still an effective
intelligence unit. In my opinion, because of demobilization of other intelligence
units that were functioning in wartime, it is the best remaining asset of the
Government in the Foreign intelligence field.

INTERLOCKING SUBVERSION IN GOVERNMENT 873

I am grateful to you for the efforts that you have made to work out an
organizational arrangement that would meet the views of all parties concerned
and for the personal support and good advice that you have given me since I have
been in the Department.
With all good wishes,
Sincerely yours,

Alfred McCormack.

April 23, 1946.
The Honorable AI^fred McCormack,

Special Assistant for Research and Intelligence,

Department of State.
Dear Colonel McCormack : I have your letter of April 23 in which you tender
your resignation as Special Assistant to the Secretary for Research and Intelli-
gence. I understand and respect the reasons that led you to this decision ; and
much as I regret that it falls to me to receive your letter, I accept your resignation.
I know that the Secretary would wish me to express on his behalf his apprecia-
tion of your devoted service to the Department over these past months, both in
organizing within the Department the intelligence work and in representing the
Department in establishing, in accordance with the President's direction, the
Department's participation in the work of the National Intelligence Authority.

May I add my own word. I know with what reluctance you gave up last fall
your intention to return to private life in order to do this work in the Department.
I know the untiring energy which you devoted to it. I know the effort which
you have put into surmounting the difficulties which were inherent in the task.
All of us who have worked with you are deeply grateful. When you joined us,
you and I had only a slight acquaintance; I knew you chiefly through your work.
As you leave, you take with you my increased admiration for that and a deep
personal regard. I hope that the future holds opportunities for us to work
together again and to happier outcomes.
Sincerely yours.

Dean Acheson.

Mr. Morris. The next one, Mr. Panuch ?

Mr. Panuch. The next one is the plan that we had always insisted
on as the only proper plan of intelligence organization for the State
Department, which limited the functions of our Central Intelligence
Agency in the Department to positive intelligence, and required co-
ordination and integration with the policy desks of the geographic
offices.

That was promulgated, approved by the Secretary, adopted, and
issued as a departmental instruction by me on May 6, 1946.

The Chairman. It may go into the record and become a part of
our record.

(The document referred to was marked "Exhibit 267" and follows :)

Exhibit No. 267

Department of State,
Assistant Secretary, AR-P,

6 May 1945.
Memorandum for Dr. Langer.

Subject : Russell Plan of Intelligence Research Organization.

1. The Secretary recently signed a series of regulations which embody the
organization principles of tiie above.

2. Since the Russell Plan has been one which this OfBce has urged over a period
of the past six months, I thought the accompanying memorandum outlining its
modus operandi as envisaged by this Oflice might prove useful.

J. Anthony Panuch,
Deputy Assistant Secretary for Administration.

874 INTERLOCKING SUBVERSION IN GOVERNMENT

Depaktment of State Publication 2554 : The Russell Plan for the Organiza-
tion OF Positive Intelligence Research in the Department of State

I. basic philosophy

On April 22, 1946, the Secretary of State issued a series of regulations activa-
ting the Russell Plan ^ for the organization for research and intelligence in the
Department of State.^ In principle, the plan is simple. Organizationally, it is
predicated in the fact that the Department of State is set up on a geographic
basis.

The political policy finally formulated, hovpever, with respect to a given country
or area must include considerations of an economic, military, sociological, and
even domestic character. Although policy, in the last analysis, must be accomp-
lished on a geographic basis by the geographic offices as line or operating units,
the analysis and evaluation of nonpolitical or functional components of foreign
policy are correlated through the offices under the jurisdiction of the Assistant
Secretary for economic affairs and the Assistant Secretary for public affairs.^
In performance of this function, these two offices operate as staff agencies.

Intelligence research to be most useful must be integrated into this general
organization. It must be organized so as to serve the geographic offices in a
"staff" capacity but at the same time serve the other "staff" echelons of the
Department under the Assistant Secretaries for economic affairs and public
affairs.

All research carried on must fit into a balanced departmental program of
positive intelligence that is related to authoritatively determined intelligence
requirements and objectives.

II. organizational objectives

The forthcoming regulations are Intended to accomplish certain basic
objectives :

1. To estaltlish the Special Assistant for Research and Intelligence as the "staff
arm" of the Secretary in the formulation and implementation of the Department's
internal and interdepartmental programs of positive foreign intelligence.

2. To establish under the Special Assistant for Research and Intelligence an
Advisory Committee on Intelligence which will, through a strong subcommittee,
formulate a departmental program of intelligence research and assign project
priorities.

3. To build up within each geographic office a Research Division which will
provide strong research facilities at the point where political decisions are made
or action is taken.

4. To build up as an office under the Special Assistant for Research and Intelli-
gence a strong central coordination and liaison group which in order to implement
the decisi(ms of the subcommittee will

( a ) coordinate, monitor, and review all departmental research studies initiated
anywliere in the Department ;

\b) undertalvc such special research studies as may be required;

(c) be responsible for can-ying out those duties assigned to it by the Special
Assistant for Research and Intelligence with relation to the National Intelligence
Authority * and any other Government agency concerned with the field of positive
intelligence.

5. To establish as an office under the Special Assistant for Research and Intelli-
gence a central group for the collection and dissemination of positive intelligence
data and materials.

III, ORGANIZATIONAL PATTERN

1. The Geographic Offices

Under the plan a Division of Research is attached to each geographic office.
This is a self-contained, nonoperating "staff" unit at the office level, under its
own chief who reports and is responsible to the director of the geographic office.
The chief of the Research Division is responsible to the office director for the
research program of the office and for the due accomplishment of the segment of

1 Program planned by Donald S. Russell, Assistant Secretary for administration.

2 Department of State Bulletin of May 12, 1946, p. 826.

3 Exceptions to this principle of organization are found in the Office of Special Political
Affairs and Office of the Assistant Secretai-y for occupied areas, where, because of the
prospective military and multilateral relations involved, a special service organization is
required.

< Department of State Bulletin, Feb. 3, 1946, p. 174.

INTERLOCKING SUBVERSION IN GOVERNMENT 875

the departmental research program assigned to the office by the Advisory Com-
mittee on Intelligence, through its Subcommittee on Programs and Priorities.
The chief of the Division of Research should be the representative of the office
director on the Subcommittee on Programs and Priorities. Though the chief
of the Division of Research reports to the office director, he and his staff are
expected to maintain the closest technical liaison on all matters of research
with the Office of Intelligence Coordination and Liaison and other research
units of the Department.

The purpose of establishing strong research units in the geographic offices is
twofold : to provide balanced research facilities at the points where political
policy is made or action taken ; and to make the intelligence operation sensitive
to, yet independent of, the policy determining political divisions. In this manner,
the office director is provided with an automatic system of checks and balances
as between his "staff" or research division and his "line" or policy divisions.

2. The Advisory Committee on Intelligence (ACI)

The Russell Plan calls for the establishment of an Advisory Committee on
Intelligence composed of the Assistant Secretaries for political affairs and the
Assistant Secretary for administration, under the chairmanship of the Special
Assistant for Research and Intelligence. It is expected that this committee will
meet only to consider matters of broad general policy in the field of positive
intelligence. It will, however, have a working subcommittee with representa-
tion from the geographic and other appropriate offices of the Department. The
job of the working subcommittee will be to formulate a balanced departmental
program of research and to assign such priorities as will assure the optimum
utilizaticm of all departmental research resources so that departmental and
interdepartmental intelligence requirements are assessed and fulfilled on the
basis of essentiality and relative urgency.

The necessity for a working group of this character, which must be staffed
by a strong secretariat, is illustrated by a partial listing of research consumers
whose competing requests for service will have to be evaluated and phased :
Geographic Offices
Economic Offices

Information and Cultural Offices
Special Political Affairs
Occupied Areas

National Intelligence Authority
Military Intelligence Agencies (^Military Intelligence Service (MIS), Office of

Naval Intelligence (ONI), Joint Intelligence Committee (JIC), etc.)

To accomplish its mission effectively, the subcommittee of the ACI, that is the
Subcommittee on Programs and I'riorities, must be a responsible group, repre-
sentative of the Department as a whole, each member of which must be author-
ized to speak for and bind his office. Each member of the subcommittee must be
acceptable to the Special Assistant for Research and Intelligence.

3. The Special Assistant for Research and Intelligence

The Special Assistant is the principal adviser to the Secretary with respect to
all matters of positive intelligence. The ACI and its subcommittee are his con-
sultative and advisory instruments for the formulation, planning, and phasing
of the Department's research-intelligence program. Although the Special As-
sistant exercises direct "line" authority only over his own staff and the office.s
immediately under his jurisdiction (OCL and OCD), he has effective teclinical
supervision over the Department's research program through the programming
and priorities functions of ACI.

Jf. Office of Intelligence Coordination and Liaison (OCL)

The mission of OCL is vital to the success of the Russell Plan, It is expected,
inter alia —

(o) to provide a permanent secretariat for the ACI and its subcommittee;

(h) to function, at the technical level, as the instrument for coordinating and
correlating intelligence research in accordance with the programs formulated
by the ACI and its subcommittee, for example, by administering research priori-
ties assigned in such programs and by applying in editorial review the research
standard formulated by the ACI and its subcommittee;

(c) to operate as the center for distribution of research papers produced in
the Research Divisions, so as to secure the maximum utilization compatil)le with
security ;

876 INTERLOCKING SUBVERSION IN GOVERNMENT

(d) to conduct specialized research on technical matters not within the cog-
nizance of other research units ; to organize and supervise cooperatives research
projects cutting across geographic and economic lines ; to undertake such special
studies as may be required of it by the Special Assistant for Research and In-
telligence ;

(e) to participate, as directed by the Special Assistant for Research and In-
telligence, in the Department's relations with the Central Intelligence Group of
the National Intelligence Authority (NIA) and other Government agencies in
the field of positive intelligence.

As the liaison group of the Department with the Central Intelligence Group
of the NIA and as the secretariat of ACI and its subcommittee, OCL. is in a key
position to coordinate the excution of the research program in its departmental
and interdepartmental aspects. Because of this organizational vantage point, it
is in a position to provide ACI and its subcommittee with informed recommenda-^
tions to guide its formulation of the research program or the assignment of
priorities. It will be in a unique position to provide invaluable assistance to
other research imits of the Department with respect to the initiation, feasibility,
or status of research projects.

5. Office of Intelligence Collection and Dissemination (OCD)

The functions of OCD are —

(o) to procure for the Department intelligence materials through various
channels ;

( 6 ) to maintain files of intelligence materials for reference use by all oflBees
of the Department ;

(c) to collect factual information and opinions on important individuals in
foreign countries whose activities or views are important in determining and
implementing foreign policy and to maintain tiles of such material for use by
all offices of the Department ;

(d) to acquire and allocate to various governmental agencies foreign publica-
tions received through tlie Foreign Service establishment;

(e) to prepare visual materials such as charts, freehand illustrations, and
mechanical drawings for all offices of the Department.

IV. THE PLAN IN OPKRATION

As soon as the ACI or its Subcommittee on Programs and Priorities establishes
a basic research program for the Department and makes assignments thereunder,
the intelligence operation will be on a current basis and every research project
can be evaluable with respect to its importance and relative urgency.

1. Clearance of projects

All projects to be undertaken by the Research Divisions, by OCL, or by other
units of the Department except the Division of Research and Publications must
be cleared through the program and priority mechanism. Several channels will
be available, depending upon the origin of the project proposal. In the case of
the geographic oflices the office director will send to the project unit of OCL any
project proposal approved by him, or if he so authorizes, by his Research Division
chief. If the project falls within the framework of tlie overall departmental
program, this unit may immediately agree to the propriety and feasibility of the
proposal and give clearance ; in case of doubt the unit would consult with the
director or his chief of research. If no agreement can be reached, the OCL
project unit will present the case at the next session of tlie Subcommittee on
Programs and Priorities (on which the initiating office would be represented)
for decision.

Other offices of the Department such as A-B, A-C, and SPA^ will submit
projects to the project unit of OCL directly or through the channel of the geo-
graphic offices when prior conversations with them make it appropriate. These
offices will be represented on the Subcommittee on Programs and Priorities, will
have access to the project unit of OCL directly, and will have access to the
research facilities of the geographic Research Divisions, OCL, and OCD in accord-
ance with the general program and priorities established by ACI or the Sub-
committee on Programs and Priorities.

If requestors from outside the Department desire the Department to under-
take research on their behalf, they will send proposals to OCL through estab-
lished liaison channels. The project unit of OCL will then submit the proposal

^ Office of the Assistant Secret.nry of State. Mr. Benton ; Office of the Assistant Secretary
of State, Mr. Clayton ; Office of Special Political Affairs.

INTERLOCKING SUBVERSION IN GOVERNMENT 877

before clearance to the appropriate office of the Department for an opinion as to
feasibility in relation to work load and to the office program.

2. Mohilizntion of resources

A useful feature of the clearing process is that the ACI and OCL, being familiar
with all resources of the research staffs, will be able to arrange joint action of
various research units upon appropriate projects, thus in effect adding to the
resources at the service of any one office. When necessary they can negotiate
with office directors for the formation of interoffice research teams for temporary
action on specific projects. The Department in this way will make the most effec-
tive use of expert personnel no matter where the individuals may be located.

3. Project Lists

Further advantages flow from this centralized clearing procedure. It will be
possible for the OCL to issue a list of projects actually under way and thus at
once inform all parts of the Department aljout forthcoming work, always recog-
nizing that producing units may for security reasons wish to limit such advertis-
ing of certain projects. Thereby the attention of various offices will be called to
studies which may l)e of use to them, and duplication will be largely eliminated.
While scanning a project, the staff can also prepare a proposed distribi;tion list
for the anticipated report which, if agreed to by the producing office, will facilitate
rapid dissemination of the report when it is finished. The balance of maximum
utilization with security considerations will be further guaranteed by locating in
OCL the center for physical distribution of research studies.

4. Stfnidards

Another concern of ACI, for the benefit both of the Department and its "cus-
tomers," is to maintain the quality and standardize the form of intelligence-
research reports. For this purpose. ACI or its Subcommittee on Programs and
Priorities will establish standards and expect OCL to examine all finished drafts
before they are reproduced, to insure adherence to those standards. Only such
editorial review can assure the continuous application of sound scholarship and
critical method throughout the intelligence organization. Actual procedures
would parallel closely those of preliminary project clearance, with the same
mechanism for reference to office directors or to the ACI in cases of disagreement.

In this fashion the ACI and OCL staff, in collaboration with the office directors
and their Divisions of Research, will formulate a coordinated program of intelli-
gence research. It will accomplish that program through the mechanism of
priorities ; it will facilitate production by organizing task groups where neces-
sary ; It will maintain quality in the product by fixing standards and exercising
editorial review ; it will assist in making the product effective by furnishing regu-
lar project reports and by proposing and effecting dissemination of studies.

V. ACTIVATING THE PLAN

It is essential that the plan be put into effect promptly. Subject to availability
of funds for the fiscal year of 1947 this appears readily feasible with the exception
of the transfer of the geographic divisions of the old Office of Research and
Intelligence (ORI) to the appropriate geographic offices of the Department. The
controlling factors here are availability of space and the necessity of pre.serving
these research groups as functioning units until the geographic offices are in a
position to accomplish organizational integration as called for by the plan.

To provide flexil)ility during the transitional period, the phasing of the transfer
is to be determined by the Assistant Secretary for administration in the best
interests of the Department of State as a whole.

Procedure on Typical Projects

1. Project Initiated in a Geographic or Research Division (e. g., The Gouin
Cabinet — sample of a fairly routine project) :

A. PROJECT INITIATION

(1) Project outlined by appropriate operating division chief.

(2) Project discussed with chief of Research Division and cleared by office
director, with tentative distrilnition list.

(3) Project cleared by OCL coordination staff, which recommends and ar-
ranges with the office for its collaboration with Biographical Intelligence Divi-
sion of OCD.

(4) Distribution list discus.sed if necessary between OCL and office.

878 INTERLOCKING SUBVERSION IN GOVERNMENT

B. FINISHED TEXT

(1) Report cleared for substance by Research Division chief and office director.

(2) Report cleared editorially by OCL, sent by OCL for reproduction, and
distributed in accordance with agreed list.

(3) Requests for the report received after original distribution to be handled
by OCL in consultation with oflSce.

2. Regional Project Requested by a Division of A-B or A-C (e. g., The 1948-49
Unemployment Level in Germany) :

A. PROJECT INITIATION

(1) Prior discussion will normally have taken place between A-C and DRE
representatives on the working level.

(2) Request goes to OCL through A-C representative on subcommittee or
through EUR/DRE.

(3) OCL approves or disapproves after consultation with EUR/DRE and the
A-C representative.

(4) Distribution list agreed by EUR/DRE, A-C, and OCL.

B. FINISHED TEXT

(1) Rei)ort cleared for substance by DRE and EUR.

(2) Report cleared editorially by OCL, which arranges reproduction and dis-
tribution.

3. An Inter-Regional Project requested by A-B, A-C, JIC, NIA, or other au-
thorized agency (e. g., AVorld Opinion on the U. S. ; Reactions to British Loan
in China, France, U. S. S. R.) :

A. PROJECT INITIATION

(1) Request goes to OCL.

(2) OCL, if it approves and is assured of the participation of other interested
oflSces, ari-anges for a project coordinator fr nn one of the offices or its own
stafe.

(3) Project coordinator arranges for cooperation of division analysts through
appropriate directors and division chiefs, constructs distribution list.

B. FINISHED TEXT

(1) Report approved by appropriate division and office chiefs and by OCL;
reproducti(m and distribution arranged by OCL.

Note. — Projects 1 and 2 would I)e done entirely in geographic Research Divi-
sions, except for collaboration of BI on 1.

Project 3 might be done entirely within OCL, but more likely a large contribu-
tion of services would be needed from personnel working within their geographic
Research Divisions.

Mr. Morris. Describe the next exhibit, Mr. Paniich. All these re-
late to this particular conflict that took place with respect to intelli-
gence reorganization?

Mr. Panucii. Yes, sir. Exhibit 9 is a letter to me from Mr. Fred-
erick Lyon.

Mr. Frederick Lj^on was then in charge of our security intelligence,
and he had had great concern over this McCormack plan, and natu-
rally, we sent our plan out to him for comment, and this is his
comment.

It is a concurrence.

Mr. Morris. And the next, Mr. Panuch ?

Mr. Panucii. The next is my reply to Mr. Lyon, reassuring him
that now we hoped that we had the intelligence fight over and that
matters would be on a sound basis.

The Chairman. Those may go into the record and become a part
of the record.

INTERLOCKING SUBVERSION IN GOVERNMENT 879

(The documents referred to were marked "Exhibits Nos. 268 and
269.")

Exhibit No. 268

May 10, 1946.
To : A-R/P, Mr. Panuch.
From : CON, Mr. F. B. Lyon.
Subject : Russell Plan of Intelligence Research Organization.

Joe : I find your memorandum of INIay 6 to Dr. Langer and its attachment
outlining the modus operandi of the Russell plan very much to the point.

Of interest to CON, and in particular FC, is the fact that positive intelligence
is completely divorced from the counter or security intelligence. This is, indeed,
as it should be.

There is one item that might possibly raise some question, but I may even
1)0 misinterpreting when I comment. I refer to the last paragraph on page 5
and, in particular, to the word "exclusive" as relates to the liaison group of
the Department with the C. I. G.

During a meeting last week with Bill Langer, it was agreed that I should
maintain the liaison on all "security intelligence" activities with the C. I. G. I
do not believe that this will conflict in any way with the liaison activities
of OCL.

In think tliat the Memorandum of Organization is clear and it shows that
a lot of thought has been given to its preparation.

Exhibit No. 269

A-R/P

May 14, 1946.
Memorandum for Mr. Lyon.

Subject : Russell Plan of Intelligence Research Organization.

1. I have your comments on the above. Under the plan, the Special Assistant
for Research and Intelligence and the olhces under his jurisdiction are limited to
positive intelligence.

2. All aspects of security intelligence remain as previously under the exclusive
jurisdiction of A-R. This includes, of course, the requisite security intelligence
liaison with NIA and all other Federal agencies concerned. The liaison of the
Special Assistant applies to positive intelligence matters only.

3. I realize, of course, that even with a clearly understood division of func-
tions, possibilities of overlapping between the two intelligence operations remain.
These may be expected to occur most frequently in the field of collection and
dissemination of information and in the several levels and spheres of inter-
departmental liaison. On the basis of my past experience, I am entirely clear
that this "peripheral overlap" can never be wholly eliminated but must be
controlled throiigh informal working agreements at all levels.

4. I made the foregoing very clear to Dr. Langer when Dr. Kent and Dr. Fahs
first proposed that all intelligence materials should flow through OCD. I had a
further talk on the matter with him yesterday. I am sure he fully understands
what is expected of his organization in this sort of "team play." So far as you
are concerned, you should exercise great care that your liaison arrangements
do not block the flow of positive intelligence material through OCD. I assume
you have made mutually satisfactory arrangements with Colonel Fearing in
this regard.

J. Anthony Panuch,
Deputy Assistant Secretary for Administration.

Mr. Morris. And the next one, No. 11 ?

Mr. Panuch. This is the implementation and structure so far as
the organization and the setup of the pLan, to one of my assistants,
Mr. Lunning.

The Chairman. It may go into the record and become a f>art of our
record.

(The document referred to was marked "Exhibit No. 270" and
follows:)

32918°— 53— lit. 13 6

880 INTERLOCKING SUBVERSION IN GOVERNMENT

Exhibit No. 270
AR-P

May 20, 1946.

Memorandum for Mr. Lunning.

Subject : Work Plan for Implementing the Intelligence Organization.

1. I have read the paper entitled "Work Plan for Implementing the Intelli-
gence Organization" which was submitted to me this morning. It is a careful
paper and, if systematically executed, should go a long way to start off the
intelligence operation on a sound basis.

2. Mr. Russell is confident about the money and I believe I have paved the
way for Langer with all of the Geographic Divisions so that his "political"
problems are relatively minor. He seems to have inherited very little of the ill
will which McCormack built up over a period of 7 months.

3. What worries me is the utter failure on the part of Langer and people like
Kent and Fahs, to grasp what is involved in the business of setting up an organ-
ization and a fortiori the difficulties involved in integrating one organization,
i. e., R. & A. into the structure of the State Department. This is a detailed job in
which everybody must participate. A plan must be worked out (which you
have done), it must be thoroughly understood by all of the people concerned;
resiJonsibilities must be assigned to individuals for performance of clearly
specified tasks ; and finally, deadlines must be fixed.

4. It is all very well for MN, yourself, and even myself, to do a lot of the basic
organizational planning and blue-printing for these people, but it will be no good
if they don't take hold and carry on where we leave off.

5. Somehow, you must bring home to Langer and right down through his two
ofiices, that organization is the thing to be sweating about now. If they do not
force themselves into a state of mind where they are willing to accept integration
with the State Department, the intelligence set-up will not work and the whole
program will be hopelessly prejudiced. If they cannot understand the relatively
simple problems of meshing the research work with the policy work of the De-
partment, how will they ever deploy to do an effective job with C. I. G.?

G. As you know, I have done my utmost to be of help. So far the results of
my efforts in terms of penetrating their thinking have been extremely meager.
Apparently I cannot convince Langer that he has a person (Huddleson) who is
apparently available and thoroughly qualified as a corporate lawyer to do the
organizational blue-printing which his other people are unable to do. Huddle-
son did an excellent job in meshing the complicated organizational relationships
between G-2 and Arlington Hall. This work would be a cinch for him.

7. I am disturbed by the situation and vuiless a radical improvement appears
this week in the way Langer takes hold of the organizational problem, we shall
have to move in with a task group to do the job which they should have well
under way by now. Accordingly, please address yourself to this problem and
keep me posted. If no improvement is apparent let me know immediately and I
shall take it up with Mr. Russell and the Secretary.

J. Anthony Panuch,
Deputy Assistant Secretary for Administration.

Mr. Morris. Now, Mr. Chairman, these documents that Mr. Panuch
has offered for the record tell the whole story of this dispute on this
intelligence reorganization plan.

In documentary fashion they describe that story.

They are all official documents, are they not, Mr. Panuch?

Mr. Panuch. Yes.

Mr. Morris. I wonder if you would synthesize for the committee
this struggle as it took place, and as it is related fully in the documents
that we have just put into the record.

Mr. Panuch. Well, the people coming in from the Office of Stra-
tegic Services were of a research character. They were university
and academic people and they took the position that our policy would
have to be made on a better basis than just making it off the cuff or,
as the term used to be, "on the cables" ; that you had to have the im-
pact on our policy of people who had time to sit back and think and

INTERLOCKING SUBVERSION IN GOVERNMENT 881

look over the entire situation and adjust our national interests to
overall international requirements; and that we should, through this
unit, build up forward-i)lannino; operations.

Senator Welker. Did tlie ultimate efi'ectuation of this plan change
the standard of determining loyalty?

Mr. Panucii. No, sir; this plan didn't have anything to do with
loyalty. That was a separate problem, security and loyalty.

Senator Weeker. What was the standard before this plan was
ultimately adopted?

Mr. Panuch. Well, as you know, Senator, there was a wartime
regulation, a civil-service regulation, which required that any per-
sonnel of doubtful loyalty should not be permitted to enter the Fed-
eral service, and that they should not be retained in the Federal service.

Now, this was never really administered in any of the departments
during the war outside of the State Department, which had a fairly
good security arrangement of its own. Now, the result of this merger,
so far as loyalty and security is concerned, was this: We had thrown
into the Department an enormous amount of unscreened personnel,
and our facilities in the Department were simply not adequate to
handle thousands of people on field investigations, and, of course,
you couldn't at that time request the FBI to do it unless you provided
appropriational support for your request.

Now, on loyalty we had tremendous pressure by Congress to do
something about cleaning out the Department in 1945 and 1946. I
am now referring to the 79th Democratic Congress.

The Civil Service Committee of the House, before whom I testified
at length, went into this matter and came up with an insistence that
particularly in the State Department, procedures be installed whereby
people of doubtful loyalty could not be retained and could not enter
a sensitive agency like the State Department.

In 1946, in July, we set up in the Department a mechanism for
screening the people who had come in, and all of the personnel, on a
security basis. There was a great deal of dispute because the usual
issues came up that we were violating civil liberties and exercising
thought control and promoting orthodoxy of thinking.

The Chairman. We have heard all that, too, Mr. Panuch.

Mr. Panuch. It was current then, too.

I decided that we would set up this program and make sure that it
was supported by the best legal opinion. We asked Secretary Byrnes
as a former distinguished Member of the Senate and the House
and a former member of the Supreme Court to pass upon it, which
he did, and approved it, and we installed it. But the conflict about
it still continued and in order to really settle it, I decided that the first
chance we had to make a test case, that we would take it, and we
would submit it to the courts, and we would end this guardhouse-
lawyer dispute in the Department as to whether it was constitutional
or not.

That opportunity offered itself in the case of Carl Marzani.

Marzani came to us in the Department as head of the Presentation
Unit of OSS. Marzani had worked very closely with me on visual
presentations to the Congress, and on reorganization of the Depart-
ment.

882 INTERLOCKING SUBVERSION IN GOVERNMENT

I believe in March of 1946, our security people came up with the
report on him, that he had been a Communist in 1940. Marzani was
a veteran and he had rights of employment, and it was a difficult
matter to fire him unless you had the proof on this thing, and proof
would involve going through a legal proceeding, and all that sort of
stuff, and so we decided that we would ask him to resign.

Well, I asked Colonel Fearing, who was his superior, to invite him to
resign, and Marzani said he wouldn't resign ancl took an appeal to me.

So I conferred with him and he asked me what the charges were and
I told him what the charges were.

Incidentally, I wrote an article on this for the record, and it is all
there and it is probably better than my recollection.

Mr, Morris. Mr. Chairman, I think the preceding witness to Mr.
Panuch was Mr. Marzani, and, during the course of the interrogation of
Mr. Marzani as a witness, reference was made to an article written by
Mr. Panuch entitled "The Marzani Case, the Inside Story of the Mar-
zani Case" which Mr. Panuch had written for Plain Talk in October
1947. The article is not long, and I suggest that the whole thing be
offered for the record.

The Chairman. It may go into the record and become a part of the
record.

(The document referred to was marked "Exhibit No. 271" and
follows :)

Exhibit No. 271

[From Plain Talk, October-March 1947-48]

The Inside Story of the Marzani Case

By Anthony Panuch, former Deputy Assistant Secretary of State

The case of Carl Aldo Marzani, who went from General Donovan's wartime
Office of Strategic Services (OSS) into a highly confidential bureau of the State
Department, makes an exciting true detective story. As unfolded here for the
first time, the Marzani case dramatizes a crucial issue before the American
people. Is suspicion of disloyalty on the part of a Federal employee sufficient
ground for his dismissal? Does the burden of proof rest on the suspect who
should establish his innocence or on the Federal Government which should
establish his guilt? Is it a privilege or is it an inalienable right to be a civil
servant? These are some of the aspects of the problem of dealing with sub-
versive elements in the Government. Although convicted, Marzani is at this
writing out on $5,000 bail pending an appeal to the higher courts.

The inside story of the Marzani case can now be told. It provides a revealing
insight into the problems confronting Government administrators in coping with
the menace of Communist infiltration, without wholesale violations of civil
liberties and rudimentary standards of American decency and fair play.

The story begins in October of 1945 when Secretary of State James F. Byrnes
appointed me Deputy Assistant Secretary of State for Administration and at
the same time designated me as coordinator of the merger with the Department
of State of such war agencies as the Office of War Information (OWI), Foreign
Economic Administration (FEA), and several others. This vast merger, involv-
ing close to 25,000 Federal employees, also funds and properties of these war
agencies, had to be accomplished in less than 90 days — by January 1, 1946.

It was a homeric task. One of the principal jobs was the "screening" of the
war agency personnel thus transferred to the Department of State, in order to
determine their suitability for employment in the highly confidential work of
the Department. For this purpose the Department maintained a corps of
trained investigators, under the experienced direction of Chief Special Agent
Thomas F. Fitch.

Moreover, when Secretary Byrnes took office he found himself plagued with
organizational difficulties in the investigative setup of the Department, inher-
ited from the preceding regime. One of these was a jurisdictional conflict be-
tween the office of Chief Special Agent Fitch and a newly established three-man

INTERLOCKING SUBVERSION IN GOVERNMENT 883

security office iinder tbe energetic Bob Bannerman. The confusion resulting
from tiiis bit of bureaucratic politics did not help the Department's problem of
screening the large numbers of transferee personnel.

The screening jot) became virtually desperate when the sudden and unexpected
merger of 1946 literally dumi)e(l thousands of new employees on the Department.
Carl Marzani was one of those thus transferred to the Department of State as
a member of the Presentation Division of the OSS.

I met Marzani early in November of 194G. At that time Col. Carter Burgess,
formerly aide to Lt. Gen. Bedell Smith and wartime secretary of SHAEP, was
executive officer to Mr. Donald Russell, Assistant Secretary of State for Admin-
istration, and myself. Colonel Burgess was working closely with me on a plan
for the reorganization of the State Department's antiquated communications
system. In this work we were being assisted by Maj. Gen. Otto Nelson, formerly
assistant to General McNarney, Deputy Chief of Staff to General Marshall.

As we wrestled with our complex task, all of us agreed that what we urgently
needed was a graphic presentation of the reorganization plan in operation.
Accordingly we welcomed General Nelson's proposal that the Presentation Divi-
sion, newly acquired by transfer from OSS, be assigned to take on the graphic
display job. The general went on to explain that one of the best men in the
Division and one who had worked with him in the War Department and in Italy
would "do a job" for us. His name, Marzani. He phoned Marzani and asked
him to come over.

In about a half hour Marzani arrived. He was still wearing his sergeant's
imiform with the patch and insignia of the Mediterranean theater. He was of
medium size, compactly built, with a sallow complexion and an unusual pair of
hazel-brown eyes. His motions and mannerisms were quick and nervous, his
facial expressions mobile. He spoke expressively, a sort of New Yorkese with
an overlay of foreign accent. His response to our difficulties was swift and intel-
ligent. He not only grasped and correctly a])praised the complexities of the
problem with which we were confronted but came up quickly with his idea of
how it could best be translated into graphic form. "Roughs," he said, "would
be in our hands in a week." And they were. General Nelson, Colonel Burgess,
and 1 were delighted with the concept of the proposed display.

In those hectic reorganization days of the winter of 1945-46 the "front office"
was pleased with the work of the Presentation Division. We called on this Divi-
sion whenever it was required to illustrate some complex problem of organiza-
tion. In all of this work Marzani was the "sparkplug." We were grateful to
General Nelson for "discovering" him.

But in April of 1946 the long arm of security began to cast its shadow over
]Marzani. Early that month Bob Bannerman presented me with a batch of files
variously stamped "Confidential," "Secret," and "Top secret." These, he ex-
plained, were the first concrete results of the Security Office's checks on some
of the personnel taken over from the war agencies under the merger. I thumbed
through the "Top secret" folders; came to one captioned "Carl Aldo Marzani."
Automatically I turned to the covering report and its concluding paragraph,
which read : "The Security Committee considers Marzani a grave security risk
and recommends termination of his services in the Department."

I could scarcely believe my eyes. This was incredible. I turned to Banner-
man and said: "Bob, are you crazy? Marzani has handled some of the hottest
stuff in the OSS and in the War Department. Colonel Burgess and General
Nelson both knew him, and they would laugh at anyone who said Marzani was
a securit.v risk."

Bannerman's reply was : "That may be, but read the whole report."

I did, with an increasing sense of unreality. Carl Aldo Marzani * * * alias * * *
Tony Whales * * * member of the Communist Party * * * in New York In 1941
* * * signed petition for the election of Earl Browder as Congressman on the
Communist Party ticket * * * wife a member of the Communist Part.v, name
Edith Charles * * * Activities in the American Negro Congress * * * Campaigned
against conscription * * * urged revolution * * *

I have read enough. "How good is the proof on this? Has Tom Fitch got
the witness?" I asked Bannerman. His rei)ly was that Fitch had not prepared
the report, luit that its substance was all derived from confidential files of various
governmental investigative agencies and considered by him to be reliable. I
asked him for his recommendation. It was his opinion that we should terminate
Marzani's connection with the Department. I pointed out to him that, under
civil service regulations to terminate, i. e., to "fire" Marzani we would have to
prefer charges. And in this case the charge would have to be that, since Marzani

884 INTERLOCKING SUBVERSION IN GOVERNMENT

was a member of the Communist Party, there was a presumption asainst his
loyalty to the Government of the United States which would require his separa-
tion from its service.

It is one thing, I explained, to prefer charges of disloyalty against a Federal
employee with civil service standing, an entirely different matter to prove them
before the Commission's loyalty board. Particularly in a case like Marzani's,
where his record of war service had been glowingly praised by high officers of the
supersecret OSS and the War Department. Then, too, Marzani being a veteran
of World War II had, under the Veteran's Preference Act, certain rights of ap-
peal to the Civil Service Commission from any adverse determination of the
Department with respect to his employment. This was a case where one had to
be sure.

While the report was devastating, I was troubled by the fact that it seemed to
be based largely on hearsay. I questioned Bannerman more closely. Who had
prepared the report? He said Morse Allen, his assistant. I pointed out that
Allen certainly could not testify to the charges of his personal knowledge —
which Bannerman admitted. I then asked Bannerman whether he himself had
gone below the surface of any of the confidential reports from the investigative
agencies — had talked to any "flesh and blood" witnesses with resi)ect to the
charges. He admitted that he had not ; but reiterated that the reports emanated
from so-called confidential informants whose identity the investigative agencies
supply the information would under no circumstances disclose.

Patiently, I pointed out to Bannerman that in this case the Department was
in an unenviable dilemma. Here we had in our hands derogatoi\v information
with respect to the loyalty of a State Department employee, one who had access
to key information — yet we were not in a position to prefer and sustain charges
of disloyalty against him. Somewhat less patiently I explained to Bannerman
that our investigative staff, which was costing the taxpayers over $400,000 a
year, ought to be able to prove or disprove charges as serious as these by digging
up the witnesses ; that we should not be forced to rely exclusively on reports
of other agencies — who would not disclose the source of their information.

Bannerman, after some further discussion, agreed this was so. He suggested,
however, that possibly Marzani might resign of his own accord if a proper
approach was made. This seemed like an excellent idea. Accordingly I told
Bannerman to set up a meeting for us with Colonel Fearing (Marzani's immediate
superior) to discuss the matter. This was held some time late in April and was
attended by Fearing. Bannerman, and myself. We all agreed that if Marzani
were "fired" he would fight, and that on the present record we would not be
able to sustain the charges. After weighing all the factors it was agreed that
Fearing should ask Marzani to resign. Against the possibility of his not resign-
ing when requested, I told Bannerman to coordinate with Fitch and leave no
stone unturned in their joint efforts to locate any reputable witnesses who
could and would personally testify in support of the charges against Marzani.

A few weeks later the phone in my office rang. It was Colonel Fearing. reix)rt-
ing that Marzani had refused to resign. I asked the colonel for details on
what had happened. Fearing replied, "Nothing much. Our talk was short
and to the point. He said to me, 'Why should I resign, what's the reason?' I
said, 'Security considerations.' He said, 'Tliat's the bunk — I'll take it up with
Russell.' "

"So you have him in your lap now," laughed Fearing, and hung up.

And Marzani was indeed in my lap if he appealed to Don Russell (Assistant
Secretary of State for Administration). The matter in that eventuality would
be turned over to me for my recommendations with respect to the action to
be taken by the Seci'etary of State, since I was in charge of overall security
administration under Mr. Russell.

Perspiration rolled down the inside of my starched collar as I laid down the
receiver. Could I talk Marzani into resigning? Suppose I could not? In
the state of the available evidence we would be "in a box." For if Marzani was
in fact a subversive, he would be alerted, and further development of evidence
with respect to his activities would be difficult if not impossible. He could and
would immediately and effectively "cover up." Since there was no tangible
evidence of his Communist affiliations and activities it would be difficult to
make a case against Marzani which would stand up even in the Department,
to say nothing of an api^eal to the Civil Service Commission or the courts.
Hearsay was not enough. Secretary Byrnes, as a former Associate Justice of
the Supreme Court of the United States, would hardly be one to authorize dis-
missal of an employee on the serious charge of disloyalty unless such a charge

INTERLOCKING SUBVERSION IN GOVERNMENT 885

was Kupported by clear and substantial evidence. We were a long way from
evidence of that kind.

To nialce the situation more complicated, there seemed to be no other ground
on which we could get rid of Marzani. He certainly was not incompetent or
insubordinate, addicted to intoxicants, or notoriously immoral.

I did not have very long to wait. During the last week in May, Marzani
called my ofiice for an appointment to discuss his "personal status" in the
Department.

Marzani came in a little before 10 o'clock on June 1. In the informal way
of the State Department we were on a first-name basis. I called him "Carl" and
he called me "Joe." We sat down in the two deep chairs by the fireplace. I lit
a cigar; he, a cigarette. Watching him, I wondered what his "fade in" would
be. He was neatly dressed in a tan gabardine suit with a light-green shirt and
a tie of darker green. He seemed entirely at his ease. Except for a pink flush
on his cheekbones — which might have been attributable to the heat of a Wash-
ington June — and a glitter in his eyes, he showed no evidence of tension or
emotion. After a few preliminary amenities he came right to the point. He
said :

"Joe, Fearing asked for my resignation on security grounds. Did you know
about it?"

I .said, "Yes, Carl ; I did."

"Did you authorize him to do it?"

I told him I had. There was a silence. I wondered what was coming next.
I had not long to wait. "What are the charges?" His voice, usually husky and
not unpleasant, now had a metallic ring and his brown eyes seemed to have turned
a bleak gray. "I'm entitled to know what the charges against me are."

"You certainly are, Carl," I conceded, "and they are serious." I then listed
them, watching him carefully for his reaction. As I reached the end of my recital
I thought I detected a look of relief pass over his face. When I had concluded
he said, "Is that all?" His comeback to my amazed "Good Lord, isn't that
enough?" furnished another surprise. He was almost casual. "Joe, all of that
is old stuff; there's nothing to any of it." Before I could even reply that such
grave charges could not be laughed off with a bare denial he let me have it.

"How often do I have to prove that these charges are the bunk?" he shouted.
"It's the same old stuff that they pulled on me in OSS back in 1943 and it was
exploded then as completely 'phony'." He shook his finger at me and asked,
"How do you think I could have been rated eligible for a job in OSS if any
of this stuff was true?"

He had me there. But here was a chance to get educated. So I asked him,
"Well, Carl, how did you get rated eligible for OSS with these charges on the
books?"

He paused to light a cigarette ; inhaled deeply, and settled back in his chair.
He said :

"I'll tell you. Back in 1943 I was in the OSS — just getting started, when the
Civil Service Commission rated me ineligible. I went to my bosses, Ed Mason
and Eniil Despres. and told them what had happened. They went to General
Donovan and told him the story ; he said he would call up the Commission. I
nosed aroimd on my own and found out what some of the charges against me
were. When I knew what the score was, I decided to fight it out. I demanded
a hearing before the Civil Service Commission's Loyalty Board."

If what Marzani said was true, this was a bold maneuver. He went on :

"I had a formal hearing before the Commission's Loyalty Board on the charges
which had been made against me." Pointing his finger, at me — speaking slowly —
he said, "Joe, these were the very same charges which you've listed this morning."

He paused to let this sink in and continued.

"Well, at the hearing before the Loyalty Board I introduced a complete history
of my life in documented form. I myself testified under oath. I called wit-
nesses, people who knew me all my life, people under whom I worked in and out
of Government, and they all testified under oath. There is a complete transcript
of the record of the hearing in the confidential files of the Civil Service Commis-
sion. On that record, which incidentally you should look over in case you're
interested. I was entirely cleared of disloyalty charges by the Civil Service
Commission and rated eligible for service with OSS."

I was flabbergasted. For if what Marzani said was true I could imagine the
cries of "double jeopardy" that would have been raised, to the embarrassment of
the Secretary of State and the Department, if we had attempted to fire Marzani
in 1946 on the very same disloyalty charges which the Civil Service Commission
had dismissed in 1943.

886 INTERLOCKING SUBVERSION IN GOVERNMENT

I pulled myself together and said, "Well, Carl, if what you say is true it cer-
tainly puts a different light on the matter. I'll have to read the Civil Service
Commission's records and vre will talk again.'" With this the conference got
off to a discussion of Marzani's experiences in OSS, his prior historyj education,
and travels.

That 2-hour conference was one I knew would be vivid in my memory for a
long time to come.

Early on Monday of the next week I got busy. I wanted to know and know
fast whether our security people had seen the Civil Service Commission's record
on the Marzani hearing, and, if so, why no mention had been made of it in the
security report on Marzani which had been submitted to me by Bannerman. My
~ cross-examination of Bannerman and his aids disclosed that they had not seen
the record. Enraged and disgusted, I immediately requisitioned it and read
it with the greatest care. There was no question about it — the hearing by the
Civil Service Commission's Loyalty Board in 1943 did involve the very same
charges which our security people had made against Marzani. After the hear-
ing, the Commission liad rated Marzani eligible for employment in the OSS.
Marzani's amazing story was true.

Despite this, there was something in the whole setup that did not ring true.
The basic testimony in the hearing was Marzani's own, plus "character" wit-
nesses testifying in his behalf. Strangely enough, the Commission had intro-
duced no evidence to support the charges against Marzani.

However, the failure of the Security Office in the Marzani case had shaken my
confidence in the operation of the Department's personnel investigation setup.
I immediately launched a thoroughgoing examination which disclosed an ex-
tremely disturbing situation. While the chief special agent, Tom Fitch, was
charged with the duty of investigating State Department employees for security
and fitness — a function for which Congress had appropriated funds at a rate of
$400,000 a year — Fitch's operation was being thwarted by the activities of the
newly established Security Office. The end product was intrigue — working at
cross-purpose — with resulting chaos and irresponsibility.

The investigation also showed that the Security Office had arranged things in
such fashion that the Department's chief special agent was excluded from liai-
son with the FBI: That the Security Committee (a supposedly impartial body
whose sole function was to evaluate evidence produced by the Department's
investigators and security officers in respect of personnel) was operating under
the chairmanship of Bob Bannerman and was composed for the most i)art of
members of his own staff. We thus had a situation where investigators sat
in judgment on the quality of evidence which they had gathered — acting not
only as investigators but as prosecutors, court, and jury — a kangaroo court. Fin-
ally, I found that the Security Committee had excluded from its membership
the State Department's outstanding expert on Communist doctrine and subversive
techniques of infiltration.

Upon Secretary Byrnes' return from the Paris Conference in July of 1946 and
with his approval we overhauled our entire personnel-security operation. The
job of investigations of personnel was firmly jilaced under Tom Fitch, the chief
special agent. Bannerman was requested to confine himself to the coordination
of Fitch's reports, with such information as might be available at FBI, ONI,
G-2, etc. To bolster up the Department's sagging communications and physical
security operation, I personally appealed to Gen. Carter Clarke, then Deputy
Chief of tStaff, G-2, to give us his best security officer. He recommended Col.
Stanley Goodrich, who was immediately employed and placed in charge of our
physical and communications security system — working directly out of my
office. The kangaroo-court Security Committee was scrapped, to be replaced by
a group of high officials of the Department wliose sole duty was to evaluate the
evidence developed by the investigators and make recommendations to the
Assistant Secretary for Administration. This time the group included the
Department's top expert on Communists and Communist techniques. Mr.
Samuel Klaus, a lawyer experienced in the detection and control of subversive
activities as a member of the staff of the General Counsel of the Treasury
Department, was designated counsel to the new security group. To shield this
group from improper pressures in security matters its identity was kept secret.
Its membership was designated by secret written order of the Secretary of State.
Its counsel was appointed by similar order.

By the end of July 1946, I was confident that the blueprints of the new
security setup in the Department of State were as good as experience and
skill could contrive. But we had to get the organization out of the blueprint
stage and into operations.

INTERLOCKING SUBVERSION IN GOVERNMENT 887

Throughout the first 6 months of tlie year Members of Congress had been
demanding a purge of alleged subversives in the Department. Indeed, late in
June of 1946 the Appropriations Committee of the Senate tacked the so-called
McCarran rider to the Departnient's appropriation bill for the fiscal year 1047.
This rider, which had been prepared by me at the request of Senators McCarran
and Bridges, gave the Secretary of State the power to dismiss any employee of
the Department without regard to civil-service rules or regulations if, in the
Secretary's discretion, such action was warranted in the interests of the Gov-
ernment. Both Senator McCarran, chairman of the committee, and Senator
Bridges, tlie then ranking Republican member (now chairman), told me in no
uncertain terms that they expected the Department to use the power thus
granted. Since Secretary Byrnes' ix»licy was that even under the rider he
would not dismiss an employee for reasons of disloyalty unless thei'e was some
substantial evidence of such disloyalty, it was up to the new security organiza-
tion to do a job of getting the evidence.

As Security Counsel, Klaus and Chief Special Agent Fitch started the tremen-
dous job of reinvestigating several hundred selected security cases. I did not
hear much about Marzani— although his case was high on the priority list — until
September of 1946. Early that month Klaus came to me and requested permis-
sion for Agent Fitch to send a strong task force to undertake a thorough ccjmbing
of the secret records of the New York City Police Department.

I gave the mission my hearty approval and asked to be kept fully and cur-
rently informed of progress.

Our first real "paydirt" in this effort came late in October. Sam Klaus
reported to me that our investigators had found some interesting data on "Tony
Whales'' in the secret records of the New York Police Department's antisub-
versive squad, a unit organized by Mayor LaGuardia for the sole purpose of
infiltrating Communist activities in New York during the war. A few days later
Klaus repoi'ted that these records appeared to bear out the charges involving
Marzani's Communist activities.

We were on a warm trail at long last. Our men went into high gear. Klaus
and Fitch had their staff analyze and follow through on the reports. Their
author, a college-bred Negro detective, Archer Drew — later to become the star
witness against Marzani — confirmed the story of the records in minute detail.
Finally, under close questioning, he described Tony Whales. The description
checked remarkably with that of Carl Marzani. I directed that we obtain
immediate and unequivocal identification of Marzani as Whales.

Klaus obtained three separate photographs of Marzani and inserted each in
a panel of other pictures of people with somewhat similar cast of features.
These were taken from Washington to New York, and Archer Drew was asked
whether Tony Whales appeared in any of the panels. Each time he unerringly
and instantly identified Marzani as Tony Whales.

At this point, and for the first time in the case, the efforts of Klaus and Fitch
had produced a "flesh and blood" witness who could and would testify as to
Marzani's Communist affiliations and activities. For the first time we had
positive proof that Marzani had lied about his Communist affiliations to the
FBI in 1942, to the Civil Service Commission in 1943, and to the Department
of State in 1946. In the case of the FBI and the Civil Service Commission,
where his statements had been given under oath, he had committed pei-jury.
Unfortunately, a criminal proceeding was barred by the Federal statute of
limitations, which requires action to be started within 2 years of the commis-
sion of the crime.

The best remaining basis for criminal action against Marzani appeared to
be his willful concealment of his Communist membership, affiliations, and
activities in connection with his employment in the State Department. How-
ever, the Federal statute on this type of fraud had never been tested in court
in a loyalty case, and there was some doubt among the Department's lawyers
as to whether criminal prosecution would be successful. Klaus and I con-
cluded, however, that this was a case in which the statute clearly applied.

We also felt that if proseciition in the Marzani case was successful it would
immeasural)ly help in the solution of the problem of subversives in the Federal
Government. It has been my experience that subversives find it not too difficult
to remain in the service of the Government through the simple expedient of
concealing their real affiliations and sympathies. They correctly discount the
chance of detection as improbable — involving usually an "induced" resignation.
Even in the event of dismissal it was not too diflScult to find another "billet." But,
if such misrepresentation or concealment involved a real danger of criminal

888 INTERLOCKING SUBVERSION IN GOVERNMENT

prosecution and a definite jwssibility of a term in tlie Federal penitentiary, Klans
and I felt that there wovild be an exodus of Commies, fellow travelers, and other
subversives from tlie Federal service.

The first step was to obtain the Secretary's authority for Marzani's dismissal
and his approval of our reference of the matter to the Department of Justice.
This had to await the Secretary's return to the Department after the completion
of the work of the Council of Foreign Ministers. In the meantime, we were
feverishly developing evidence of Mai'zani's communistic activities in New York.

Despite our utmost efforts to prevent Marzani from becoming aware of these
activities, he managed to get word, through his Communist contacts in New York,
that something was "cooking." He called on me on November 15 to tell me
that he was "tired" of being persecuted and that he had decided to resign from
the Department and enter private business. It was apparent to me that Marzani
knew he would be fired and he probably would be prosecuted for his fraud in
concealing his Communist connections. It was smart strategy for him to "resign"
before dismissal and indictment.

I listened noncommittally. It was too late for Marzani to resign. His case
was even then — out of my hands — on its way to the Security Committee, and
then to Mr. Russell and finally to Mr. Byrnes for action. When he left I imme-
diately issued orders that his resignation was not to be accepted. So far as
the Department of State was concei'ned, Marzani could not be permitted to
resign. The Department was in possession of evidence indicating that he had
committed a crime. Accordingly, it was obvious that he had to be dismissed
under the McCarran rider in the best interests of the Government. After that
his case had to be referred to the Department of Justice.

On December 20, shortly after the Secretary's return from New York, I was
authorized to sign Marzani's notice of dismissal under the McCarran rider. This
was sent to him by registered mail the same day. Shortly thereafter Sam Klaus
was authorized by Mr. Russell to present the matter to Attorney General Tom
Clark. Immediately after his conference with Klaus the Attorney General
ordered presentation of the matter to the next grand jury, and the case was
assigned for preparation to John R. Kelley, Jr., Special Assistant to the Attorney
General.

At the outset Kelley was somewhat dubious of the chances of obtaining an
Indictment, much less a conviction, in the case. As he saw it, the law of tlie
case depended on the untested fraud statute. Furthermore, there were really
only two key witnesses to sustain the case — Archer Drew, the New York City
police detective, and myself. In a critical case of "first impression" such as
this, involving all sorts of political dynamite, any prosecutor likes to have an
abundance of evidence and plenty of good witnesses. Kelley was no exception.
It was Sam Klaus, working in close cooperation with Kelley, who slowly but
surely overcame the latter's doubts. Klaus brought Drew down from New York
and, after one conference with the detective, Kelley knew he had a potential
star witness. He decided to proceed full steam ahead.

The grand jury was impaneled and, after hearing Detective Drew, myself,
and others, promptly handed down an indictment on 11 counts against Marzani.
As the slow but inexorable process of Federal justice began to catch up with
Marzani, the Communist Party high command began to take an interest in tlie
case. They knew that a conviction in this case would mark the beginning of
the end of their subversive operations in the Government.

During the period that the case was awaiting trial, Marzani was kept under
strict surveillance He was in constant communication with key Communists
throughout the country. While he was represented by Washington counsel, we
knew the real strategy of his defense was being develoi>ed by the party's brain
trust in New York. Finally, early in May the case was reached for trial and
"all the chips were down." Failure to obtain a conviction was certain to send
the President's $25 million employee-loyalty program floundering on the rocks
of administrative uncertainty.

The opening court skirmish turned on the selection of a jury. The counsel
for the defense repeatedly excused the "solid citizen" type of prospective juror.
The jury, as finally impaneled, included nine Negroes. We knew that Marzani
intended to stress his activities in the American Negro Congress as benevolent
rather than subversive. While the prosecution felt that Marzani did not have a
chance of acquittal on the evidence that would be produced against him at the
trial, there was always a possibility of a "hung" jury, for it takes just one juror
to bring about a disagreement and a new trial.

INTERLOCKING SUBVERSION IN GOVERNMENT 889

Marzani and his counsel were obvionsly elated. They evidently felt that the
possibility of a disagreement was excellent. They literally exuded confidence
as the trial besan. From my own experience in the trial of many cases in the
courts of New York, I shared somewhat the prosecution's fears with respect to
the outcome.

The trial opened sleepily. The Government prosecutor, Mr. Kelley, was the
soul of caution. He leaned backward in his efforts to introduce nothing in evi-
dence that would give rise to the slightest possibility of error. It was sound
strategy to undertry the case. If the Government attempted to bear down,
Marzani would undoubtedly raise the cry of "Persecution."

On about the fourth day of the trial I was called as the Government's first chief
witness. The substance of my direct testimony was brief. First, my official
position in the Department of State, its scope, my responsibilities in the field of
security, my relationships with Marzani the time that I first learned of any
dero,!:;:atory information about him involving his loyalty. Then Prosecutor Kelley
came to the heart of the case — my conversation with Marzani on June 1, 1946.
The climax came wJien I told the story of the Department's development of the
real evidence of Marzani's Communist relationships and activities, in October-
November of 1946, and his prompt dismissal under the McCarran rider in
December.

As the defense attorney rose to cross examine, I wondered, sitting in the wit-
ness chair, what his tactics would be. For obviously it was vitally necessary for
the defense to overcome the effect of my testimony. After a few ineffective
efforts to shake my recollection (a preliminary cross-examination routine) the
defense attorney got down to business. First he repeatedly brought out that there
had been no one present at the June 1 conference except Marzani and myself.
Then he produced a paper prepared by Marzani which purported to set forth what
was said by him and by me at the conference of June 1 — all in direct quotes.

As the defense counsel read to me, statement by statement, what I allegedly
had said and what Marzani claimed he had said, I began to grasp the pattern of
the defense strategy.

If the jury believed Marzani's version of the crucial conversation of June 1,
it followed that he and I had never discussed the question of his loyalty or his
Communist activities and affiliations. We had discussed, according to him, the
folly of the Department's "anti-Sovief policy and agreed that it was bad. We,
according to Marzani— deplored J. Edgar Hoover's "witch-hunting" and that of
certain Members of Congress. We allegedly had agreed that the real security
risks in the Department were the so-called "liberals," who "blabbed out State
Department secrets at cocktail parties and to newspaper columnists." The first
thing to be noticed about this anticipatory cross-examination was that it followed
the Communist Party line — to attack a firm foreign policy as anti-Soviet; to
smear J. Edgar Hoover and Members of Congress as witch-hunters ; to divert
suspicion to liberals as the real subversives. Marzani was putting on a show
for the comrades.

But he was also laying the foundation of his defense, in which he hoped the sole
issue would be his word against mine. If the jury believed his story that we did
not discuss his Communist Party affiliations and operations on June 1, then
Marzani did not lie about them to me in my capacity as an official of the Depart-
ment of State, and an acquittal was likely to result. If he as much as convinced
one juror, there would be a disagreement and a new trial. This could go on
ad infinitum imtil the Department of Justice eventually nolle-prossed the case
out of sheer weariness and frustration.

My hunch on the strategy of the defense proved quite accurate. As the case
progressed, Marzani's plan to confuse the issues in the mind of the jury became
more and more apparent, always coupled with the tacit insinuation that he was
being framed by the Government to provide a Roman holiday for the witch-
hunters in the Republican Congress. The "pitch" was having real effect on the
jury and even on the press correspondents.

Fortunately Prosecutor Kelley had some aces of his own to play. Marzani, of
course, knew that the key witness to his communistic activities was Detective
Archer Drew. But what he did not know was that through the unremitting
efforts of Sam Klaus and Tom Fitch the prosecution had on tap two former mem-
bers of the Communist Party who — prior to their expulsion — had known Marzani
as a Communist and who were prepared to identify him as Tony Whales. Kelley
decided to put these two witnesses on the stand before he climaxed his case with
Archer Drew.

890 INTERLOCKING SUBVERSION IN GOVERNMENT

This brilliant handling of the case paid dividends. Marzani was shaken to be
identified in open court as Tony Whales by two former members of the Communist
Party. And he could attack this testimony only by arguing that a Communist
can never be believed even under oath — a line with extremely dangerous impli-
cations to his own case. By this time the case had reached its high point of
susi>ense. The jury was alert. The newspapermen who, up to this time, had
been taking a restrained view of the testimony, were now taking copious notes.
Prosecutor Kelley, now fully warmed up to his work, unfolded his climax
carefully.

First he introduced the testimony of Lieutenant Gallagher, a distinguished-
looking veteran of the New York Police Force. Gallagher testified how in 1940,
under orders from Mayor LaGuardia, he had set up an "undercover" operation
for the sole purpose of penetrating the Communist organization in New York City.
A most important part of the mission of this group, he explained, was the detec-
tion of subversive operations among the Negro groups in New York. For this
assignment a Negro detective was required. After careful study of all available
candidates, Gallagher testified, Archer Drew was selected for this delicate and
vital job.

With this introduction. Archer Drew took the stand. He identified bis oflacial
reports on Marzani's activities which, 4 years ago, be had filed in police head-
quarters. Under careful questioning he then launched into a description of
bis undercover operations. He told the story of how he joined the party and
was given the party name of "Bill Easley'' ; how "Tony Whales" and he became
friends ; how he visited Tony and his wife "Edith Charles" at their apartment.
He recounted how Tony told him of his boyhood struggles, of his fight to get
an education, of his entry into Williams College, of his studies in England and
his trip around the world. Drew painted a vivid picture of the close relation-
ship existing between himself and Tony Whales; of their frequent discussion
of the objectives of the Communist Party and the best methods of their achieve-
ment.

At the conclusion of this testimony. Prosecutor Kelley asked Drew to say
whether Tony Whales was in the courtroom, t^nhesitatingly Drew pointed to
Marzani and cried, "That's Tony — that's Tony Whales."

The effect of Drew's identification of Marzani and Tony Whales was electri-
fying to the jury. Even the most laconic of the press correspondents were writing
feverishly ; some were rushing out of the courtroom to flash the news to catch
the late edition of the Washington afternoon papers. Marzani, his sallow face
an ashen gray, was whispering excitedly to his lawyer who was shaking his
head doubtfully.

After the defense's cross-examination of Archer Drew — which merely tight-
ened the noose about Marzani — the Government rested its case.

The trial dragged on for several more days, through a procession of character
witnesses, climaxed by Marzani's hysterical testimony in his own behalf, which
was riddled by Prosecutor Kelley's cross-examination. But for all practical
ourposes, Marzani's fate was settled when Drew pointed him out.

After both sides rested and the lawyers summed up. Judge Keech instructed
he jury in a charge which was a model of fairness. Tlie jury retired ; elected
.i foreman ; returned with a conviction of Marzani on all 11 counts. "School
was out" for Carl Aldo Marzani.

With Marzani's conviction a fait accompli, I was off on a long-delayed mission
to Germany. On the airliner I opened the current issue of Newsweek and was
somewhat surprised to see a picture of Marzani leading off the Marzani case
for so long that I had become numb to its significance as a matter of public
interest. To me, aside from its element of counterespionage, the ease repre-
sented a difticult technical problem in the arduous but unspectacular business
of developing a basic criminal sanction on whicli the Government could build
an effective counterinfiltration program.

As I read the arresting caption under Marzani's picture, "His conviction gave
the Government hope," I could not help wondering whether the average reader
would realize the tremendous amount of planning, professional skill and sheer
tenacity on the part of all concerned which had been required to convict Marzani
the hard way — in open court and before a jury virtually of his own choosing.

Senator Welker. May I proceed with a couple of further questions ?
The Chairman. You may.

'' INTERLOCKING SUBVERSION IN GOVERNMENT 891

Senator Welker. You have placed in the record by your oral testi-
mony and by documentary testimony the relationship of Schwarz-
ij walder and Appleby.

Now, did you ever have occasion to learn that Mr. Schwarzwalder
sought to replace J. Edgar Hoover as head of the Federal Bureau of
Investigation ?

Mr. Panucii. There was talk of that in the newspapers, sir, but it
seemed fantastic to me. I never paid much attention to it.

Senator Welker. Now, I will ask you this about Mr. Appleby:
Did you ever see over his signature a statement, and I quote :

A man in the employ of the Government has just as much ripht to be a member
of the Communist Party as he has to be a member of the Democratic or
Republican Party?

Mr. Pantjch. Sir, I believe I read that in a publication by the
United States Chamber of Commerce in 1947.

Senator Welker. Did you ever read it in the Congressional Record?

Mr. Panuch. No, sir ; I did not.

Senator Welker. In a speech made by Mr. Bradley, of Michigan,
reported in the Congressional Record, 1946, July 18?

Mr. Panuch. No, sir; I did not. But I believe that the statement
in the United States Chamber of Commerce was based on the Congres-
sional Record statement.

Senator Welker. I see.

Mr. Morris. Mr. Chairman, we do not have a copy of the original
statement referred to in that particular Congressional Record. We
do not have that.

Senator Welker. But it is in the Congressional Record here, and I
believe that it should be inserted.

The Chairman. I direct that the staif try to find the original state-
ment and insert it in the record and make it a part of our record.

Senator Welker. Well, it is a part of the record, since I read the
statement.

The Chairman. I want the original statement.

Senator Welker. Very well.

(The quotation referred to by the chairman follows:)

[From the Congressional Record— House, July 18, 1946, pp. 9389-9390]

Mr. Bkadley of Michigan. Appleby has under him a gentleman by the name
of George F. SchwarzwaUler, who was sent out to streamline the intelligence
departments of the Army, the Navy, and the State Department, and he said
that the records of the Communists in those files should have a "lean and hungry
look," and so they have been pulled out and destroyed.

He also sou.irht to replace Mr. J. Ed.i^ar Hoover, head of the Federal Bureau
of Investigation. Should the FBI files be pulled, we would never have a record
of any of the Communists who now seek employment with the Government. The
point of the matter is that Mr. Paul H. Appleby, in a communication over his
own signatiire, which I have seen stated —

"A man in the employ of the Government had just as much riglit to be a
member of the Communist Party as he has to be a member of the Democratic or
Republican Party."

If Mr. Appleby should be proposed as Director of the Budget to succeed the
very splendid man who left a short while ago to accept a better position, then
I suggest, in the interest of real Americanism and in the interest of the soundness
of this Government of ours, the Senate had better give pretty careful considera-
tion to Mr. Appleby's philosophy of government before confirming such an appoint-
ment.

892 INTERLOCKING SUBVERSION IN GOVERNMENT

Mr. Morris. Mr. Chairman, ISIr. Panuch was talkino; about the
Marzani case and made reference to the article. But I think, Mr.
Panuch, that if you would tell us in detail some of the problems
presented to you as Security Officer by the Marzani case, you would
go further than that particular article, judging by what I know of
your executive session testimony and the article.

Mr. Panuch. I told him what the charges were and Marzani said
those charges had been made in 1942 when he was going into OSS,
and that he took it up with General Donovan and asked General
Donovan to appear before the Civil Service Commission and meet these
charges head-on; and he said that after appearing before the Civil
Service Commission he had been made eligible for service in the
OSS.

And I said, "What proof do I have of this?" and he said, "Well,
you can requisition the stuff in the Civil Service Commission and
look at it."

So I looked at the record, and, as a lawyer, the thing that struck
me was that the record was not complete in the sense that there
was nothing there of the information on which these charges against
Marzani had been made.

So I then ordered an all-out investigation so that we would either
have it one way or the other, and we found that evidence in New
York in the counter subversive unit set up by Mayor LaGuardia in
the police department, and that gave us Mr. Drew, who had pene-
trated the American Negro Congress in which Marzani was operating,
and gave us a series of

Mr, Morris. He had penetrated for the Department ?

Mr. Panuch. For the police department.

Mr. Morris. True, yes.

Mr. Panuch. There was no question but that he had fully identi-
fied Tony Whales, which was Marzani's party name, as the man who
was infiltrating the Negro congress. The only question then was
whether he could identify him, which he did by means of photo-
graphs.

Having had the original McCarran rider attached to our appropria-
tion, it enabled us to dismiss people in the best interests of the Gov-
ernment, and we made up our minds to dismiss him.

Before I had a chance to dismiss him, he came to the office and
told me he was being persecuted and wanted to resign, I told him to
relax, and, when he left, I immediately advised that his resignation
should not be accepted.

Mr. Morris, In other words, you wanted to make a test case ?

Mr. Panuch. That is right.

Mr. Morris, And the purpose of making a test case was to establish
some sort of security ?

Mr. Panuch. We then sought his indictment. We couldn't indict
him for perjury because he hadn't committed perjury, but he had
lied to me in connection with his Communist affiliations.

Mr. Morris. In other words, his statements were not under oath
to you?

Mr, Panuch. That is right. We indicted him under the Frauds
Act. We dismissed him in November. We indicted him in December
and we convicted him in May of 1947. Rather, we indicted him
December 1946 and convicted him in May of 1947.

INTERLOCKING SUBVERSION IN GOVERNMENT 893

That case went up to tlie court of appeals, and it was sustained
on the issue as to his lying in the State Department, and the counts
of perjury to the P^BI in connection with the OSS appointment were
dismissed.

It went to the Supreme Court on two separate appeals, and each time
was sustained 4 to 4.

Mr. Morris. In other words, the circuit court had upheld the con-
viction and the Supreme Court upheld it by the 4 to 4 vote ?

Mr. Panuch. That is right.

The effect of that, sir, if I may completely wrap it up, was that
we had established a criminal sanction. In other words, you can't
find out anything about subversives unless you can rely on the state-
ments they make as to their past history with respect to their em-
ployment. Now, if you don't have a criminal sanction they can make
any kind of a statement and there is no way that you can do anything
about it ; but if you have a precedent that he is going to spend some
time in the Federal penitentiary, you know that yon are going to
get a clean card when he submits his information questionnaire, and
then you are in a position Avhere you can act on an enlightened basis
as to whether the man is a loyalty or security risk or not.

Mr. Morris. And that is why you went as far as you did ?

Mr. Panuch. That was the purpose.

Mr. Morris. Will you tell us what were the security problems that
faced you at that time? That is, in determining loyalty of the par-
ticular employees in the State Department?

Mr. Chairman, this particular series of questions I think is im-
portant for our overall hearings on internal security.

Mr, Panuch. Well, first of all, there was the problem of scope.
This was an enormous amount of people that had to be screened.
That was No. 1. We had a small staff, a good one, but our appro-
priation was only $400,000 and you can't do much in the way of field
investigation with that. If we attempted to do that on our own, why,
we would have been in the game for 40 years. There were two issues,
and Mr. Byrnes always believed that no agency should do its own
investigation, that all of these investigations should be done by the
FBI, and that there should be one special place to do all investigations,
that the FBI had the facilities, they had the confidence of the public,
they had the confidence of the Congress, Hoover was an outstanding
man with a good staff, good discipline, knew the subject, and really
should do the job for all agencies. And in the headquarters Army
Service office, we relied on Mr. Hoover. That was one problem.

The other problem was criteria which was very, very difficult, and
the difference between loyalty, as such, and security. Now, subversive
infiltration essentially is a revolutionary operation. To me, a man
who is out for espionage is pretty easy to control by counter intelli-
gence, but the man who is in there to influence your policy or to mis-
direct your policy, to immobilize your policy, is a far more dangerous
person. Yet, from the standpoint of security, like getting drunk, or
leaking out information or playing around with agents, and all that
stuff, he may be thoroughly loyal. So there was the problem about
loyalty and security, and, of course, that required, if you are going
to approach it on an institutional basis, as good an application of the
jury system as we could get in an administrative operation. It was
desirable that this man be tried by a jury of his peers.

894 INTERLOCKING SUBVERSION IN GOVERNMENT

Now, by that I don't mean people in his own section, but people
who had no connection with him in the Department who were suf-
ficiently knowledgeable and with a good sprinkling of lawyers to
determine what is relevant and material, and so forth, so that they
could make an evaluation of a man's loyalty and security, or the
cases where loyalty overlapped security. Then to give him his ad-
ministrative due process, he had the right to be presented with
charges, and the nature of the charges, and things of that kind ; make
statements of his own before the Board; and, of course, have his
appeal to the Secretary of State. That was the machinery which
we set up, and it was a competent organization and the only one of
its kind in the Government. Its work was carefully done, but it did
not last long. It was superseded in 1947 by the Government-wide
program and its personnel dispersed.

Mr, Morris. By the Government- what program?

Mr. Panuch. The Government-wide program, the so-called 1947
President Truman's loyalty program.

You see, we applied the reasonable doubt test of loyalty. Basically
that meant that if there was a doubt as to a man's loyalty, that doubt
was resolved in favor of the State Department as against the employee.

Wliat happened in the new progi-am of 1947 was that they put in
what I call the overt-act test. They specified that in order to dis-
miss a man for disloyalty or to make him ineligible on loyalty grounds,
there had to be reasonable grounds to show that there was present dis-
loyalty.

Mr. Morris. In other words, it had to be present disloyalty ?

Mr. Panuch. Present disloyalty.

Mr. Morris. Under standards of that nature, suppose you showed
that a man was an important Communist agent 6 months ago.

Mr. Panuch. It would be a close question.

Mr. Morris. A close question — I see.

Would you tell us how they would apply such evidence as that ?

Mr. Panuch. Well, now, it is a subjective question, Mr. Morris,
but it wouldn't be a very close question to me, I would say 6 months
was present, but many other people who didn't want to fire him would
say, "Well, that is not present disloyalty. He has changed his mind."

Mr. Morris. Under that standard now that you have been describ-
ing, very often, in order to find evidence of a particular act, you get
direct evidence of activity on the part of some agent, and you have
to look over the whole course of his career, and possibly, if you are
lucky, you will have some evidence along the line; if you are lucky,
as in the case of Alger Hiss. Whittaker Chambers happened to know
him in 1938.

Applying that standard, do you think there would be any effective
discovery of Communist agents?

The Chairman. The overt act.

Mr. Panuch. Absolutely ineffective.

Mr. Morris. As you describe it, it sounds hard to use.

Mr, Panuch. Almost impossible. You can never get the evidence.

The Chairman. In other words, while you were there in the State
Dej)artment, the security check program continued to deteriorate ?

INTERLOCKING SUBVERSION IN GOVERNMENT 895

Mr. Panuch. Well, let me put it this way : It was deteriorating
when I came in there because of this transfer. We tried to do some-
thing about it but in 1947 they put us out of business.

The Chairman. I see.

Mr, Morris. So all these unscreened people that

Mr. Panuch. Stayed right in.

Mr. Morris. Stayed right in. Now, in connection with the Marzani
case, were you acquainted with the Presentations, Inc.?

Mr. Panuch. I certainly was.

Mr. Morris. Would you tell us something about that? We asked
Mr. Marzani about that and he gave us precisely no information.

The Chairman. It was the fifth amendment, was it not?

Mr. Morris. Yes, in every question.

Mr. Panuch. I must say to you gentlemen that I found out about
the Presentations Associates very late in the game in the State De-
partment.

Marzani was a very, very brilliant fellow, and on the side he had
one of the best equipped visual presentation operations ever seen in
the Government. He was a genius. He had unlimited funds under
the OSS, and with this agency he did work for the War Department
on the most complex presentations of military matters during the
war. He had letters of recommendation from important members
of the General Staff, and all that stuff. On the side he was using
these assets, governmental assets, in a private enterprise of his own
for money, and we found out about it in our investigation in October
of 1946 when the Presentations Associates had made up a political
documentary for the Communist-controlled union in the United Elec-
trical Workers. This, of course, raised a tremendous issue. We
didn't know whether there was a crime involved or what, but we cer-
tainly knew that there was a terrific civil misdemeanor. So we
liquidated the people, and Presentations Associates, although we
couldn't convince the Department of Justice that there was an in-
dictable crime. I personally think there would be grave doubts
whether there was — I don't know. That is the story on Presentations
Associates,

]\Ir, Morris. To go back to some matter that we have already cov-
ered :

Did the organization of the United Nations have an effect on the
State Department's foreign policy mission?

Mr. Panuch. Yes; it shifted the foreign policy process of formu-
lation of the State Department from a geographical, country-to-
country basis in which the test of your policy is national interest,
to international considerations, which completely diluted the factors
of enlightened self-interest,

Mr. Morris. Now, would you enumerate the basic problems of pol-
icy and reorganization which the merger in the United Nations or-
ganization presented? First, where did the concept for the merger
originate ?

Mr. Panuch. Well, the concept for the merger originated in the
Bureau of the Budget. I would say that roughly there were about
10 problems, policy and organization, that were basic when I came
into the Department, and which had to be solved.

I would say the first one was getting policy control over the operat-
ing units that came in, like OWI and so forth, and when I talk about

896 INTERLOCKING SUBVERSION IN GOVERNMENT

policy control, gentlemen, I couldn't possibly do justice to the mutinous
conditions which prevailed in the Department.

These people came in there and were telling Foreign Service officers
that they were going to be purged in the new regime, and all that
sort of thing. I had to stabilize it; and when I say "policy control,"
I am understating it. I could use "control."

There was the question of what tyjDe of U. N. participation would
we have, and who would have a voice in our participation in U. N.
policy in the Department. In other words, let's say you had a British
question coming up in the United Nations. Welf, would the British
affairs desk in the Geographic Division be consulted? And suppose
Mr. Alger Hiss or somebody disagreed with the Geographic Division,
who would decide and what would be our policy ?

You had to get the blueprints on that. That, I think, is outlined
in General Nelson's report. It is stated there as a prime policy issue.

Another one I have mentioned is the scope of the intelligence
mission at the national level, and within the Department itself, the
question being on both points the preemption of foreign policy;
whether you could do it through the outside by control of intelligence
through Treasury, go to ONI and all that stuff, and then impact it in
the Department, or whether you keep that out ; and, of course, whether
you would have the Central Intelligence researchers take over the
intelligence desk in the Department.

Then, of course, the Foreign Service Act. I think I might spend
a little time on that as to what happened, and it shows you one of the
problems that we had.

I assigned the draft of legislation to a committee of Foreign Service
officers to process, and the instruction I gave them was: "Make sure
that you get the best thinking in the Government and in the universi-
ties on this thing, and make sure that you work closely with the various
chairmen in the Foreign Ail'airs Committees in the House and Senate."

They did that, and had their own staff board of senior Foreign
Service officers, which advised them on organizational methods, retire-
ment, actuarial rights and policies, and personnel examinations. We
did manage to come up with a pretty good bill which went through
both committees of the House and Senate, and we finally got that
approved by both Houses, with just one dissenting vote. Then we
had the final job of getting it concurred by the Departments in interest,
like Commerce and Labor, and so forth.

We had a few nonconcurs, which we managed to resolve by ac- j
commodations, and finally, just as it went over to the President —
and this being a very historic action for the Foreign Service, I made
arrangements that we would have our pictures taken with the Presi-
dent and the presentation and that sort of thing; and after a while
I found out that the people in the White House weren't ansAvering
my telephone calls, which is a very bad situation for any departmental
officer to get into.

Then finally, about 2 days before this act would lapse. Dean Acheson
came to my office and said, "I have been talking to Clark Clifford,"
who was then the President's counsel, "and the President is in doubt
about this act because he doesn't know whether it is a good thins: or
not."

This was Saturday — I will never forget this.

INTERLOCKING SUBVERSION EST GOVERNMENT 897

So we went over to see Clifford and talked to him about it and said
Mr. Byrnes had worked for this thino; and both Houses of Congress
had passed it with but one dissenting vote, and the departments had
cleared it, and what was wrong with it?

Well, the Bureau of the Budget had filed one of these reports on
it, which damned it with faint praise, and it was enough to create
a doubt in President Truman's mind, and he insisted that we set up
an intercom with Mr. Byrnes, who was in Paris, to make absolutely
certain that he was for the act. And it was in this intercom that
]Mr. Byrnes assured Mr. Truman that this was the act he had worked
on for a year, and he ought to sign it, and Senators Vandenberg and
Connally also joined in the recommendation. So it was signed at the
eleventh hour.

The reason they didn't like it was we insisted on good standards of
criteria for the entrance of Foreign Service officers, at a junior
grade, and for very strict criteria on entry into the Foreign Service
of officers from the agencies, and that was where the issue was, with
the Bureau of the Budget.

The other questions — those are needed for the modernization of the
Department, communications and physical security, budget and fin-
ance operations, that we did with everything except the budget, we
couldn't get hold of that one, not within 2 years.

We managed to move the Department from the old State Building
hito the new building where it is now, and then there was a need for
a complete study of the policy patterns on the Department that had
been built up over a period of years, and we launched a study which
analyzes the organization, the structure, the makeup and the incre-
ments in the Department at several phases in its history, starting from
1806 to 1946. That is done by a set of very interesting charts which
I am sure would be of assistance to your committee in its report. That
was done under my supervision.

Mr.MoREis. Mr. Chairman, the staff has gone over with Mr. Panucli
the charts mentioned by him. They are very informative, rather
concisely set together, and I would recommend that they go into the
record, because they do seem to be valuable.

The Chairman. They may go into the record and become a part of
the record.

(The document referred to was inserted in the appendix of the
record.)

Mr. Morris. There is one report on the organization of the Depart-
ment of State which contains a history of the State Department,
which I think would be important to our record.

It is starting in 1806 and in relatively few pages shows how the
State Department expanded from 1806 to the time of its publication
in 1946.

The Chairman. It may go into the record and become a part of the
record.

(The document referred to was inserted in the appendix of the
record.)

Mr. Morris. On pages 39 to 40 in this same volume there is set forth
a description of the Department, of the Special Political Affairs De-
partment, that is pertinent to the testimony that is given here today,
by Mr. Panuch. I would like that also to go into the record.

898 INTERLOCKESTG SUBVERSION IN GOVERNMENT

The Chairman. It may go into the record and become a part of
the record.

(The document referred to was inserted in the appendix of the
record.)

Mr. Morris. May they go into the appendix ?

The Chairman, They may go into the record appendix.

Senator Welker. May I ask Mr. Paniich a question?

The Chairman. Senator Welker.

Senator Welker. Are you familiar with Mr. Berle's testimony,
given in the Congressional Record, page 1296 of the Congressional
Record ?

Mr. Panuch. I read it at the time, sir.

Senator Welker. Tell us, who was Mr. Berle?

Mr. Panuch. Adolf Berle was the Assistant Secretary of State for
Administration, and I believe he held that position from 1936 to 1944.
Precisely, he had the job that Mr. Russell had, who was my imme-
diate superior during that period.

Senator Welker. I will ask you is it not a fact that he testified to
the effect that there was a pro-Russian group in the State Depart-
ment, spearheaded by Dean Acheson and Alger Hiss? Is that what
you read of his testimony?

Mr. Panuch. Yes, sir.

Senator Welker. Does that testimony coincide with your impres-
sion?

Mr. Panuch. I would definitely say that Mr. Acheson and Mr. Hiss
at the time that I was in the Department were sympathetic to the
Soviet policy.

Senator Welker. And I take it that you have read Robert Sher-
wood's book, Roosevelt and Hopkins, where many times that same con-
clusion was referred to, about the pro-Russian group in the State De-
partment, and their feelings thereon?

Mr. Panuch. Yes, sir.

Senator Welker. I think I have no further questions.

The Chairman. I would like to make one point here. In relation
to your dealings with and the reconnnendations of the Bureau of the
Budget, is it your impression that this same pro-Communist influence
might have been there ?

Mr. Panuch. Well, sir, I don't know whether it was pro-Commu-
nist or not, but it was certainly pro-Soviet and pro-International.

The Chairman. All right.

Mr. Morris. Senator Welker made reference to testimony given by
Mr. Berle before the House Un-American Activities Committee.

Mr. JNIandel, would you read that precise portion from that actual
testimony ?

Mr. Mandel. It is the testimony of Adolf Berle, Jr., before the
House Committee on Un-American Activities, on August 30, 1948,
published on page 1296 of the hearings of that body :

Mr. Berle. As I think many i)eople know, in the fall of 1944 there was a dif-
ference of opinion in the State Department. I felt that the Russians were not
going to be sympathetic and cooperative. Victory was then assured, though not
complete, and the intelligence reports which were in nfy charge, among other
things, indicated a very aggressive policy not at all in line with the kind of coop-
eration everyone was hoping for, and I was pressing for a pretty clean-cut show-
down then when our position was strongest.

INTERLOCKING SUBVERSION IN GOVERNMENT 899

The opposite group in tlie State Department was largely the men : Mr. Ache-
son's group, of course, with Mr. Hiss as his principal assistant in the matter.
Whether that was a difference on foreign policy — and the question could be
argued both ways ; it wasn't clean cut — was a problem, but at that time Mr,
Hiss did take what we would call today the pro-Russian point of view.

Mr. Panuch. That is a fair statement of the situation in 1945, 1946,
when I was in the Department.

Mr. Morris. Based on your experience in the Department?

Mr. Panuch. Yes.

Senator Welker. Mr. Chairman, may I have another question?

The Chairman. Senator Welker.

Senator Welker. Mr. Panuch, a moment ago we referred to Mr.
Acheson and his pro-Russian group in the State Department. I will
ask you whether or not, in your opinion, that Acheson-Hiss pro-Rus-
sian group in the State Department contributed to the infiltration of
Communists or Communist sympathizers within the State Depart-
ment ?

Mr. Panuch. It is almost impossible to answer that, sir, respon-
sively.

I would say that the biggest single thing that contributed to the
infiltration of the State Department was the merger of 1945. The
effects of that are still being felt, in my judgment.

Mr. Morris. In other words, all these people from these agencies,
unscreened personnel, were being brought into the State Department ?

Mr. Panuch. That is right.

The Chairman. Mr. Panuch, do you know who was the liaison
officer, for example, between the Bureau of the Budget and the White
House ? Did you come into that in any way ?

Mr. Panuch. No, sir.

The Chairman. You testified a while ago that you encountered
opposition to your reorganization suggestion. From what groups did
you encounter this opposition ?

Mr. Panuch. Well, I would say it was almost exclusively — the big
fight was on the Intelligence setup, but there I had the support of
the two Assistant Secretaries in charge of the geographic units, Assist-
ant Secretary Dunn and Assistant Secretary Braden, and most of the
old-line officers.

The Chairman. What attitude did the geographic officers take to-
ward this?

Mr. Panuch. To the Intelligence thing?

The Chairman. Yes.

Mr. Panuch. They thought it was a terrible thing; it was going
to take them over.

Mr. Morris. Did any other groups oppose you ?

Mr. Panuch. Well, the opposition was all of the incoming groups.

Mr. Morris. Were there any serious controversies involving policy
control ?

Mr. Panuch. Yes. I don't want to repeat. The major policy con-
trol issue was the Intelligence, at the national level, and the Intelli-
gence within the State Department; and, of course, the critical one
was the Alger Hiss attempt to move his office into the Under Sec-
retary's Office.

Then there was the one I have described about the Foreign Service
Act. We almost lost that for two reasons, that I have mentioned.

900 INTERLOCKING SUBVERSION IN GOVERNMENT

at the Bureau of the Budget's efforts. And, of course, the loyalty
program which we won but lost very shortly after — in 1947.

Mr. Morris. That is about the extent ?

Mr. Panuch. Those were the big ones. There were an awful lot
of fights, but those were the big ones, having substance.

Mr. Morris. How were these controversies related to issues of policy
control ?

Mr. Panuch. Well, Mr. Morris, every organizational question in a
policy agency — mind you, the State Department deals with nothing
except communications, estimates, and policy, and if you control a
point in the State Department, by Anrtue of your position you deter-
mine the initiation of a given policy.

So, therefore, any organizational fact in the State Department or
in the Joint Chiefs of Staff or in the National Security Council, or
even in the Treasury Department, or in the Army, Navy services, in-
volves a policy-control matter.

Mr. Morris. Just another question:

Will you discuss this in relation to control of atomic energy? That
issue had arisen by then, had it not?

Mr. Panuch. That issue arose in 1946.

Mr. Morris. Will you tell us about that, please?

Mr. Panuch. I had learned about that when I was in the Office of
War Mobilization, prior to that. That is where I got familiar
with it.

Mr. James Newman was in that office, and he was in charge of atomic-
energy matters, which then came up at a level of the Office of War
Mobilization, the supreme domestic office of the President; he ad-
vocated socialization of atomic energy as a force so destructive that
it should not be permitted to be either under Army control or under
business control where it might be utilized for antisocial purposes.

When I came into the State Department, shortly after I came into
this Department, there was a so-called Acheson-Lilienthal plan for
the international control of atomic energy.

Mr. Morris. In other words, that was a plan in being?

]\Ir. Panuch. That is right.

Mr. Morris. Well defined, and it set forth a particular course of
action ?

Mr. Panuch. That is right.

Mr. Morris. I wonder if you could tell us what that was ?

Mr. Panuch. Yes; it is a matter of record, but roughly it was a
question of we put in all our stuff with the Russians, and we would
have no adequate control over their operations, and we opposed that,
and Mr. Herbert Marks had charge of that for Mr. Acheson. Mr.
Marks, I believe, was counsel to the TVA when Mr. Lilienthal was
Director, and he had a personal interest in it. We opposed it for
the simple reason that we believed that we had an edge in atomic en-
ergy and atomic weapons, and we should keep that to ourselves and
not dish it out to people who might be our mortal enemies.

Finally, I think Mr. Byrnes, at my suggestion, and Mr. Frederick
Searls' suggestion, asked Mr. Baruch as to whether he would repre-
sent us in the United Nations on this question of resolving control of
atomic energy, and under what conditions that control would be safe-

INTERLOCKING SUBVERSION IN GOVERNMENT 901

guarded. And Mr. Baruch had with him Mr. Searls and Generals
Farrel and Eberstadt.

Mr. Morris. In other words, they opposed the plan. What was
their basis of opposition to the Acheson-Lilienthal plan ?

Mr. Panuch. For the reasons I stated — it was turning it over on a
group-balance basis without adequate control of our interests and
seeing that there was adequate control.

Mr. Morris. How was that resolved ?

Mr. Panuch. The Acheson- Lilienthal group was superseded by this
takeover by Bernard Baruch and Eberstadt and Searls in the AEC,
"and they insisted on dual-equal control, and it never got to first base
because the Russians opposed it.

Senator Welker. Will you again tell the committee the Acheson-
Lilienthal plan on atomic energy ? I missed that.

Mr. Panuch. I wonder if I can repeat it.

Senator Welker. I am sure that you can.

Mr. Panuch. The essence of the Acheson-Lilienthal plan in a sen-
tence was that it provided for the internationalization of atomic
energy on the assumption that we and the Russians and the British
were all going to be cooperating partners in the new world, and that
we could all cooperate with each other on the basis of mutual trust
and confidence.

Senator Welker. And you doubted that?

Mr. Panuch. I doubted it ; yes, sir.

Senator Welker. And you liacl to seek outside help to protect you in
that, did you ?

Mr. Panuch. Sir, that is not quite correct. I opposed it within the
Department, and we finally made our position effective.

Senator Welker. Well, your effective opposition was seeking out
Bernard Baruch. Is that correct?

Mr. Panuch. In this sense. Senator : Mr. Frederick Searls and Mr.
Franz Snyder, who were a part of Mr. Byrnes' team brought into the
Department — we all opposed it. Wlien Mr. Byrnes came back from
Europe, we said this should be taken at the highest level, and some-
body like Bernard Baruch should take it over for us.

Senator Welker. Then your team, as you say, together sought out
and received the aid of Bernard Baruch?

Mr. Panuch. Yes, sir; through Secretary Byrnes and President
Truman.

The Chairman. Mr. Morris.

Mr. Morris. To get back to the merger again, Mr. Panuch, do you
think that the State Department merger had a long-range political
objective?

Mr. Panuch. That is my opinion.

Mr. Morris. It is an opinion based on your experience in dealing
with it, and you were the person putting it through ?

Mr. Panuch. Experience in the Government. I have a very definite
opinion on it.

I think the plan was revolutionary, revolutionary in the sense that
it was intended to establish the machinery of perpetual control of na-
tional policy through the control of foreign policy and expenditures,
and I have prepared a statement on that, which I beg leave to submit
to this committee and ask to have incorporated into the record.

902 INTERLOCKING SUBVERSION IN GOVERNMENT

Senator Welker. Can you tell us briefly what it is about, Mr.
Panuch ?

The Chairman. Mr. Panuch, we have a 24-hour rule for this com-
mittee, before we receive any statements of witnesses, and you have
complied with that, and your statement will go into the record and
become a part of the record.

Mr. Morris. Mr. Chairman, may I point out that some of that
statement deals with a period of time that Mr. Panuch was not actu-
ally in the State Department. With that limitation, may it go into the
record? It is an amplification of his direct testimony to the extent
that he talks about the time that he was in the State Department.

To the extent that he talks about periods other than his tenure in the
Department, may it go into the record as an opinion of Mr. Panuch,
qualified as it was today?

The Chairman. It may.

(The document referred to follows:)

Statement of J. Anthoni' Panuch

(Former Deputy Assistant Secretary of State for Administration, and Coordina-
tor of ttie Merger and Reorganization of tlie Department of State under
Executive Orders 9608, 9621, and 9630; submitted in connection witli testimony
before the Senate Subcommittee on Internal Security, June 25, 1953)

Any comprehensive investigation of subversive infiltration of the State Depart-
ment immediately after World War II, for the purpose of influencing our foreign
policy, necessarily involves inter alia the following questions :

1. Whether, during the period of 1945-47 subversive infiltration of the State
Department was effected and the scope and dimensions thereof.

2. Whether such infiltration was designed to accomplish, and did in fact
accomplish, a radical change in the character, structure, and orientation of
the State Department as the foreign policy instrumentality of the United States
Government.

3. Whether such infiltration was for the purpose of exercising influence or
control over the processes of United States foreign-policy formulation, inter-
pretation, and administration ; the extent, if any, to which sucli purposes were
accomplishetl and the ideological motivation therefor ; and

4. Whether such infiltration was adverse to or inconsistent with the preserva-
tion of our free institutions and the national interest.

These questions in their necessary implication raise profound and highly con-
troversial issues with respect to the relation of the individual and the state;
between individual freedom and national security in a world aflame with revolu-
tion ; of the character and degree of interdependence between our vital national
interest and the integrity of our processes of foreign policy formulation and
administration.

Accordingly, I respectfully request that this statement be accepted for the
record of the hearings as a part of my testimony before this committee.

Our national survival is dependent on our strategic and internal security. In
a democracy such as ours, public opinion decisively influences the course of polit-
ical action. The capacity to move decisively in international matters — of vital
importance to the Nation — is dependent on genuine popular support. Such
support when withheld from the Chief Executive in the conduct of the Nation's
foreign affairs, because of deepseated popular distrust of the ideological orienta-
tion of his foreign policies, usually has one of two fateful consequences to our
national security : Either it paralyses the Nation's political initiative and will
to act; or (as in the case of Korea) the Executive's action is subsequently re-
pudiated at the polls. In either event the prestige of the United States as the
leader of the free world coalition suffers irreparable injury in the eyes of other
nations. Even if the full conspiracy is thwarted by the people's alertness and
revulsion, therefore, some damage remains.

INTERLOCKING SUBVERSION IN GOVERNMENT 903

To win results such as these ; to confuse our purpose ; to undermine our free
institutions ; to promote national tensions and disunity are cardinal objectives
of the Kremlin's clandestine strategy of political warfare against the internal
security of the United States. To gain these strategic ends, the Kremlin will
strike unerringly — with precision and subtlety — at the weakest point of our
iwlitical structure.

It has done so in the past and will continue to do so in the future by skillful
utilization of direct and, above all, of indirect accomplices as the instrumen-
talities of its hostile purpose.^

This great danger to our institutions was recently pointed out by Ambassador
George F. Kennan.^

The men in the Kremlin are undoubtedly familiar with Abraham Lincoln's
admonition that "If this Nation is ever destroyed it will be from within ; not
from without." Profound students of history, they realize that the most subtle
and deadly method of accomplishing our destruction from within is to under-
mine our free institutions in the name of civil liberties ; to cartelize the flow
of thought and expression in the name of freedom of speech, opinion, press, and
advocacy ;. to enmesh our strategic security and political initiative in illusory
collective security arrangements ; to effect the collectivization of our free society
in the name of Messianic global reform.

As acute students of our national psychology, they undoubtedly realized that
our constitutional institutions could be bypassed or exploited against themselves
most effectively if the job were left to the initiative of "men of zeal, well mean-
ing but without understanding" — particularly if they were in a position to in-
fluence the formulation or course of our national policy.

This type of masked political assault — to influence or immobilize American
policy in the interest of Soviet revolutionary imperialism is much more difiicult
to detect and much more dangerous than ordinary espionage. Our Constitution
limits the crime of treason to "levying war against them (the United States) or
in adhering to their enemies, giving them aid and comfort." In an undeclared
war such as our present cold war with the Kremlin, or in a "police action" such
as Korea, aid and comfort or adhering to the enemy is not punishable treason
as constitutionally defined.

These circumstances simplify the Kremlin's problem of influencing the devel-
opment and course of our national policy. For this purpose agents, members
of the Communist Party, United States of America, Soviet sympathizers and
fellow-travelers have been effectively used. Great reliance has been placed on
the use of the "unwitting" or "unconscious" accomplice — a technique known in
security and counter-intelligence operation as "indirect complicity."

Former Under Secretary of State Welles has described this technique (which
he mistakenly seems to believe is the invention of the German General Staff) as
follows : '

"We are consequently too inclined to believe that that (indirect, unconscious
complicity) 'can never happen here' because the American citizen is not apt
knowingly to become a traitor. The danger lies in our failure to recognize that
the German General Staff looks for the weakest spot in the political structure of
each country, and that in the Anglo-Saxon democracies the weakest point is not
the direct accomplice but the indirect accomplice."

Mr. Welles points out the danger of this technique to our internal security as
follows :

"At first glance the theory of indirect complicity seems very simple and easy
to deal with. It obviously implies the use by a foreign power for its own ends
the nationals of another power without their conscious knowledge. But it would
be disastrous to dismiss the danger lightly because of a belief that we can readily
construct the necessary legal safegTiards, or that we can meet it solely by ex-
panding our existing intelligence agencies. * * * The very nature of the German
plan will, in peacetimes, seem fantastic."

1 "Men born to freedom are naturally alert to repel the invasion of tlieir liberty by evil-
minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men
of zeal, well meaning but without understanding" (Mr. Justice Brandeis dissenting,
Olmstead v. U. S. (277 U. S. 438 (1928) ).

2 <<* * * rpjjg American concept of world law ignores those means of international
offense * * * those means of the projection of power and coercion over other peoples —
■which bypass institutional forms entirely or even exploit them against themselves. Such
things as ideological attack, intimidation, penetration, and disguised seizure of the
institutional paraphernalia of national sovereignty" (George F. Kennan, American Diplo-
macy 1900-50, p. 98).

3 Time for Decision, Sumner Welles, p. 246. Harper, 1944.

904 INTERLOCKING SUBVERSION IN GOVERNMENT

The German use of indirect accomplices was largely confined to industrialists
and iwliticians. The Soviets, on the other hand, preferred to concentrate on
the native intelligentsia ^ for whom communism had a powerful appeal.

"Creeping Socialists" employing the "encroaching control" method of revolu-
tionary activity within the policy machinery of the United States Government
make exceptionally useful indirect accomplices in the Soviet scheme of operation.
This is so because of the clandestine nature of the encroaching control technique
which was blueprinted as long ago as 1926 : ^

"One good man with his eyes, ears, and wits about him inside the Department,
whether it be the Interior, or the Treasury where the Government's tax policies
originate, can do more to perfect the technique of control over industry than a
hundred men outside."

Encroaching control was effectively employed in shaping the domestic policy
of the United States by the initiation, interpretation, and administrative im-
.plementation of reform legislation. But it really came into its own after Pearl
Harbor when the War Powers Act enormously enhanced the powers of the
Executive and shrouded its operations in the veil of wartime secrecy.

This was accomplished by a mass infiltration of special foreign war agencies
created by the Government to operate in the political, economic and paramilitary
fields of propaganda, psychological warfare and foreign intelligence. These
agencies, with the Treasury Department, partly preempted the functions of the
State Department in the field of foreign policy during the war, but were inter-
meshed with the State Department through interdepartmental committees.
They were merged with the State Department immediately after the war in
Ocober of 194.5.

Ill

It was World War II which gave the Soviet plan its impetus. During this
period a massive infiltration of sensitive agencies of the Government took place.
Pro-Communists and personnel of subversive and revolutionary tendencies were
able to establish themselves in strategic "slots" due to the following factors :

1. The war : Universal preoccupation with the all-important objective of
winning the war created a general relaxation toward American Communists
ibecause of sympathy for the people of the Soviet Union engaged in the common
fight against Hitler.

2. War agencies : Temporary war agencies operating in the politico-military
field in such sensitive areas as intelligence, propaganda, economic warfare and
paramilitary and parapolitical operations gave revolutionary elements in Ameri-
can life the long-sought opportunity to invade en masse the area of foreign affairs.

3. The Hatch Act: The Hatch Act was supposed to be the legal bar to employ-
ment of Communists in Government. But the law required legal proof of mem-
bership in the Coumiunist Party which, as a practical matter, was virtually
impossible to obtain. And the act provided no remedy as to fellow travelers, or
other subversives, actual or potential.

4. Supreme Court decisions : In 1943, in the Schneiderman case, the Supreme
Court indicated that it was possible to advocate the fundamental teachings of the
Communist Party and "still be attached to the Constitution of the United States."

There was also the dictum of Justice Jackson in the West Virginia State Board
of Education v. Burnette (319 U. S. 624 (1943) ), in which he issued the following
caveat :

"If there is any fixed star in our constitutional constellation, it is that no official,
high or petty, can prescribe what shall be orthodox in politics, nationalism,
religion, or other matters of opinion, or force citizens to confess by word or act
their faith therein."

5. Emasculated loyalty regulations: In 1942 a civil-service regulation was
enacted permitting the dismissal of Federal employees concerning whose loyalty
there was a reasonable doubt. The Schneiderman decision and the Jackson
dictum in the Burnette case in 1943, made any meaningful administration of this
regulation in the civilian agencies of Government virtually impossil^le. (The
armed services had special security legislation which permitted removals in the

* Indeed the appeal of the Communist philosophy as distinguished from Communist slogans
has always been to the disillusioned intelligentsia. It offers them the power of which they
are deprived, and a theory for its ruthless use ; and it provides them with a scientific
philosophy which satisfies their religious cravings while permitting them to feel up to date.
R. H. S. Cross-man, New Fabian Essays, p. 13. , ^ , ^„ ^„„„

5 Encroaching Control, Stephen Raushenbush, The New Leader, March 5 and 12, 1926.

INTERLOCKING SUBVERSION IN GOVERNMENT 905

best interests of the service.) It was common knowledge that the Communist-
dominated Federal Workers Union dictated to the Civil Service Commission the
kind of questions which could be asked in its investigation of loyalty.

The testimony before the Civil Service Committee of the House of Representa-
tives during 1946 shows conclusively that the Civil Service Commission was not
allotted the funds essential to administer the wartime loyalty regulation. The
result of this was that only a small proportion of the civilian employees entering
the wartime agencies were screened for security or loyalty.

World War II had demonstrated that the most subtle and effective way to
shape domestic policy in the United States was to freeze and control the pattern
of the economy through heavy Federal expenditures generated by war or an
extended foreign crisis. Applying this technique to the postwar situation it
was clear that continuance of great expenditures, if geared to an appropriate
external emergency, would establish the political and propaganda base on which
the redistributive tax levels and economic controls indispensable to any program
of socialization could be legislated. In such a climate of postwar emergency,
control of foreign policy would amount to a disguised but virtual monopoly over
our national policy.

Further, if working control of United States foreign policy were focalized in
the United Nations Organization, the role of Congress in our foreign affairs
could be bypassed or at least assured by massive propaganda attacking its "pro-
vincial" sabotage of the machinery for the preservation of world peace.

To accomplish this objective, the merger of the personnel, functions, properties,
and funds of five huge wartime foreign agencies with the State Department was
accomplished by Executive order on the recommendation of the Bureau of the
Budget. These agencies included the Foreign Economic Administration, Office
of War Information, Office of Inter-American Affairs, certain elements of the
Office of Strategic Services, and the Office of Foreign Liquidation.

The underlying purposes of this merger, in my opinion, were :

1. To shift control over the formulation of foreign policy from the career
Foreign Service officers of the Department to personnel of reliable ideological
orientation.

2. To acquire control over all sources of foreign intelligence in the State
Department.

3. To centralize control over the foreign intelligence operations of all Federal
departments and agencies, including the military departments of the FBI.

4. To shift the center of gravity in the process of United States foreign policy
formulation from a national to an international orientation via the supranational
United Nations Organization.

5. To build in the United Nations Secretariat and in the Department of State
a propaganda machine which would establish the new order and market its
policies on a domestic and international basis.

6. To maintain foreign policy control, irrespective of any changes in the national
administration, through control over the hiring and firing of all personnel of the
State Department and the Foreign Service.

7. To control the recruitment of American personnel for the Secretariat of the
United Nations Oi-ganization.

8. To gain control over the recruitment of United States personnel of the
military government oi'ganizations in Germany, Japan, Austria, and Korea as
and when these organizations were transferred to the jurisdiction of the State
E)epartment.

The Bureau of the Budget directed merger under the War Powers Act provided
the color of authority, the funds, and the ideologically qualified personnel to
transfer this blueprint into reality under the disarming guise of a routine
economy measure and under cover of the chaos incident to demobilization.

Thus, in September and October of 1945 the State Department — theretofore a
relatively small, but compact policy agency — became a huge, bloated organiza-
tion with a confused mission, swamped with inexperienced, untrained — and what
is worse, unscreened — personnel.

The merger precipitated a battle for jwlicy control in the Department which
engendered savage infighting. Eventually the situation was moderately stabilized,
but the problem of eliminating imdesirable personnel was never resolved because
the effective loyalty and security program set up for the purpose in July of 1946
(under Secretary Byrnes) was superseded by a Governmentwide program in-
stalled late in 1947, which made the elimination of undesirable personnel virtually
impossible.

906 INTERLOCKING SUBVERSION IN GOVERNMENT

In assessing the impact of the merger on tlie State Department and the formu-
lation of our foreign policies, it is important to understand the political ideology
of the great masses of personnel transferred to the Department. For the most
part they were people with little experience in foreign affairs. Their ideology
was far to the left of the views held by the I'resident and his Secretary of State.

The end of this ideology may fairly be described as a socialized America In a
world connnonwealth of Communist and Socialist states dedicated to peace
through collective security, political, economic, and social reform ; and the redis-
tribution of national wealth on a global basis.

The doctrinaire theology underlying this dream of peaceful world reform can
be rediiced to a few articles of faith which — despite their invalidation by the
events of the past 12 years — are still accorded the force of dogma. These were
accorded wide publicity when summed up by Thomas Mann in his The Coming
Victory of Democracy published in 1938. Briefly : °

1. Socialism alone is an entirely moral impulse, an impulse of conscience con-
cerned only with human welfare and peace. Socialism is true democracy. Paci-
fism is the hallmark of socialism and democracy.

2. Nationalism when appearing in highly industrialized nations is a thoroughly
aggressive impulse directed against the entire world. Its concern is not with
conscience but with power, not with human achievement but with war. Patrio-
tism, capitalism, and imperialism are the emotional and material dynamics of
militaristic nationalism.

3. Fascism as manifested in Nazi Germany, Mussolini's Italy, and Franco's
Spain is the perversion of socialism to the aggressive ends of militaristic nation-
alism ; and is alone the sole and mortal threat to world peace. If the world
cannot achieve peace and progress it will be due solely to fascism and its
so-called dynamics.

4. Soviet communism : The Soviet Union, whatever its revolutionary menace to
the capitalistic order and whatever its internal policies, is a peacefully disposed
socialist nation which does not imperil world peace, the essential on which all
else depends.

5. National communism: In backward nations requiring modernization and
industrialization but unused to parliamentary democracy, this form of national
state is the only acceptable predecessor to socialism.

The underlying influence of this ideological orientation in the course of our
political action from World War II through Korea seems evident. The im-
pervious i-efusal to fact the implications of Soviet world imperialism; the deci-
sions of Teheran, Yalta, and Potsdam ; the unquestioning acceptance of the United
Nations as the sole formula for the maintenance of world peace; the abandon-
ment of nationalist China are not a series of political blunders or mishaps. They
cannot be explained in terms of our vital national interest or of our strategic
security. They can only be explained as the logical and purposive implementation
of a priori revolutionary doctrine oblivious to such considerations.

CONCLUSION

In one of his last messages to Stalin, the late President Roosevelt cabled : "I
am sure you are aware that genuine popular support in the United States is
required to carry out any policy, foreign or domestic. The American people make
up their mind and no government action can change it."

For the past 7 years, the people of the United States have been deeply divided
and confused over the course and orientation of our foreign policy culminating
in the Korean war. In the last election, the first since 1940 in which foreign
policy was made a national issue, they overwhelmingly voted for a change.

The supreme mission of internal security whether it be exercised by the Chief
Executive,, or by the Congress or by the Supreme Court in their respective con-
stitutional fields is to safeguard the right of the people to "make up their mind"
and to determine their own destiny. This is particularly vital when the popular
will conflicts with that of an anonymous bureaucratic elite who have a vested
interest in or are the prisoners of a policy which the people have rejected. The

« Thomas Mann in his The Coming Victory of Democracy (1938) says: "Whatever one
niav think of socialism from the point of view of economic and political indivicUialism. one
must admit that it is peace loving, pacifist even to the point of endangering itself. From
its very nature it has very little sense of power and if it should be destroyed, it will be
owing to this deficiency."

INTERLOCKING SUBVERSION IN GOVERNMENT 907

mission is urgent when the anonymous elite and their allies are superbly skilled
in the techniques of engineering consent to their faits accompli by a rationally
calculated use of irrational methods of persuasion.

It may be assumed that all efforts on the part of the Chief Executive, the
Secretary of State or of the Congress to make the policy echelons of the State
Department responsive to the popular mandate will be skillfully resisted. In the
case of the comniittees of Congress any such action will be portrayed as a violation
of civil liberties and an invasion of the constitutional prerogatives of the President
in the field of foreign affairs.

However, the framers of the Constitution did not intend that the domain
reserved to the Executive in a government of limited powers should provide
a clandestine rendezvous where the embezzlement of the people's liberty and
security could be accomplished by encroaching control over its foreign policy.

It is my opinion that the President has acted wisely and effectively in the
measures taken to safeguard the process of foreign-policy formulation and
implementation in the State Department. Significant in this respect are the
following :

1. The installation of a new security program based on the principle that
Government service is a privilege and not a right, and vesting in each depart-
ment head final authority for the hiring and firing of all personnel under his
jurisdiction.

2. The reorganization of the Department of State's security organization and
personnel on a basis which will enable it to carry out the President's security
program with reasonable efficiency.

3. The drastic reorganization of the Secretariat of the State Department,
assuring the Secretary, the Under Secretary, and the Deputy Under Secretaries
of State "fingertip" availability and control over the process of policy formu-
lation, coordination, and implementation.

4. Elimination from the Department of operating functions connected with
the information program and foreign aid.

5. The designation of the Chairman of the Civil Service Commission as the
President's top aid and adviser on matters of Federal departmental personnel.

6. The removal of so-called schedule A re policymaking jobs from civil-service
coverage.

These admirable measures, however, are only a point of departure toward
the correction of a situation which has become desperately aggravated over the
past 7 years, and which can only be brought under control by the Executive with
the vigorous support of the Congress through the coordinated exercise of its
power of investigation.

Senator Welker. When was this written, Mr. Panuch?

Mr. Panuch. Two days ago.

The Chairman. Will yon tell ns about your departure from the
State Department, when that was consummated.

Mr. Panuch. I was dismissed instantly. I will give you the detail
on it briefly.

In November 1946 Mr. Byrnes had decided to resign on account of a
heart condition. He had been under tremendous pressure in the
Council of Foreign Ministers, and it was at that time understood that
he would resign at the end of the Council of Foreign Ministers' meet-
ing which was then slated for Moscow in April or March of 1947.

Then something transpired which made Mr. Byrnes resign in
January.

My superior, Mr. Russell, immediately tendered his resignation,
which was accepted, to clear the decks for General Marshall, and I
tendered my resignation to Mr. Byrnes. I told him I wanted to get
out because my life wouldn't be worth a nickel after the new team
took over.

The Chairman. Why do you say that, Mr. Panuch?

Mr. Panuch. I was a very unpopular man in the State Department.

The Chairman. Wliy?

908 INTERLOCKING SUBVERSION IN GOVERNMENT

Mr. Panuch. Well, on account of the issues that I have testified
about with the pro- Soviet clique.

So, what happened was I talked to the Secretary and he said, "Look,
it is all right for Don Russell to resign because he was appointed
by the President, subject to confirmation, but I have appointed you
and you are the only person in the Department that knows anything
about the organization, knows anything about the budget, or anything
about the administrative matters. General Marshall is a very good
friend of mine and I can't accept your resignation and leave him here
without anybody who knows something about the enormous problems
that have occurred in the last few months."

Mr. Morris. This is your conference with whom ?

Mr. Panucii. Secretary Byrnes.

He said, "Why don't you submit your resignation to General Mar-
shall and I will talk to him about you and let you know ?"

When General Marshall came from Hawaii, Secretary Byrnes did
talk to him and I was told that "General Marshall wants to see you,
talk to you, immediately, and he wants to have you stay on."

The next day I was told by a newspaperman that I was slated to
get the full treatment, and I found out that Secretary Acheson, who
was then Under Secretary Acheson, who was expected to be Under
Secretary for General Marshall, during an interim period until Under
Secretary Lovett could come over from the War Department, would
not tolerate my being around the Department.

Senator Welker. ^Yho was this? Dean Acheson would not tol-
erate your being around the Department ?

Mr. Panuch. If he were Under Secretary under General Marshall ;
yes.

So I made the necessary preparations, and I stayed around to be
called by General Marshall, and one of my people was taking care of
his engagement desk, and the engagement was constantly being put
off, and so on January 23, at 5 : 30 that night, Under Secretary Ache-
son called me into his office, and we had a conversation, and he said,
"Joe, you and I haven't gotten along very well," and he said, "Now
General Marshall has asked me to take over here as Under Secretary
until Mr. Lovett comes over and I told him that I would do so only
on condition that I would have complete charge of the administra-
tion of the Department, and, as you and I don't see eye to eye on
various matters, I would like your resignation."

So I told him I had already tendered my resignation to Secretary
Marshall, and he said, "Really ?"

And I said "Yes."

He said, "Where is it?"

I said, "I will go into General Marshall's room and take it off his
desk," which I did.

It was one of the simple ones : "I resign at your pleasure, Acting
Secretary for Administration."

I gave that to Mr. Acheson and he seemed surprised, and he put
it in his drawer and produced a letter accepting my resignation, signed
by General Marshall, effective as of the close of business on that date,
which, under Department rules, was 10 minutes later.

The Chairman. Mr. Panuch, as a final question, I would like to
know whether or not your impression at the time you left the State

INTERLOCKING SUBVERSION IN GOVERNMENT 909

Department was whether or not this pro-Communist influence which
dominated the Department, about which you have testified here this
morning, still prevailed ?

Mr. Panuch. Sir, I would say it is present, but whether and where
it prevails is a judgment that you would have to make, if you were
in the Department, yourself.

The Chairman. That would depend on the individual's judgment.
I believe that Secretary Dulles made the statement that up until
the Korean war the pro-Communist interests dominated the
Department.

Mr. Panuch. I would modify that to "pro-Soviet."

The Chairman. We will not quibble about words. We thank you
^ ery much for appearing before the committee. You have given valu-
able information. You have shown the connecting link between the
OSS people and people from other agencies, and the Communist
organization.

We thank you for appearing.

Mr. Panuch. I think it was my obligation.

The Chairman. Thank you, sir.

We will stand adjourned.

(Whereupon at 12 : 10 p. m. the committee recessed, subject to the
call of the chairman.)

The following letter was ordered printed in the record at this
point :)

Syracuse University, Maxwell Graduate School

OF Citizenship and Public Affairs,

Syracuse, N. Y., July 14, 1953.

Mr. Robert Morris,

Chief Counsel, Internal Security Subcommittee,
United States Senate, Washington, D. C.

Dear Mr. Morris : Your letter of July 2 arrived when I was out of town, filling
a week's engagement at tlie University of Chicago.

I don't think I ever have seen the statement by Congressman Bradley to
which you refer, although I have been told of it before. In any case, I do not
have a copy of it, and have no files developed in the course of my work for the
Government. I think, however, that I can be responsive to your inquiry.

Congressman Bradley could have referred only to a single statement I made
on one occasion, and only one, considerably before 1946 — my present guess would
place it in 1935 or 1936. In the course of many thousands of verbal interchanges
and the signing of many thousands of memoranda and letters in the hectic work
of those days, I feel fortunate that no other statement has lived to plague me.

As I recall it, rather indistinctly out of the whole body of business in which
I participated so many years ago, the statement in question was a sentence con-
tained within an intradepartmental memorandum written hastily as a way of
treating a gossipy kind of charge of Communist affiliation or leaning in the case
of an employee known to me as not a Red, but as having other shortcomings which
limited his responsible usefulness. It was my feeling that the Red charge was
unwarranted, that his real limitations wei'e well understood, and that he was
kept within them so that he had no significant influence. In attempting to
strike down the unwarranted charge, I wrote too incisively and sweepingly,
without making my whole position clear.

Even so, my memo was less idiotic at the time it was written than it would be
now. In a strictly legal sense, it was true that a Government employee then had
the same right to be a member of the Communist Party as he had to be a member
of either of the major parties. And in American theory generally governing at.
the time, the Communist Party was viewed as, in one sense, a "conventional,"
additional, splinter party. The real character of the Communist Party greatly
differentiating it from our conventional parties had not then been much revealed.
I had at that time never seen a Communist or a Communist sympathizer, so far
as I knew.

910 INTERLOCKING SUBVERSION IN GOVERNMENT

Nevertheless, if I had written at more length I would have given a very differ-
ent impression, for it was my belief then, as it is now, that a known Communist
should not in fact be retained in Government employment. At approximately
the same time as I had written the memo we have been discussing, I had verbally
instructed an executive to secure the resignation of a subordinate employee who
had admitted Communist membership to this executive. That resignation was
submitted, and, of course, accepted. Even within the limits of law and popular
temper then existing, it seemed clear to me that a Communist would bo a person
so little understanding of the American people and American ways, so jioor in
judgment, as to make a poor public servant. Even a reformed Communist seems
to me unlikely by virtue of his reform to become suddenly characterized by
commonsense. My memo was a crude and hurried effort to knock down a libel,
not to defend a Communist.

After all these years I cannot verify the precise phraseology you quote, but
the purport of this letter is to say that I did on one occasion use some such lan-
guage as that attributed to me, in the circumstances just described.

I have been out of the Department where these things happened over 9 years.
Some of the persons I knew then are still alive, some still in Wasliington, a
goodly number of them in Congress. The President's brother, Milton Eisenhower,
was one of my most intimate coworkers in those days.
Sincerely yours,

Paul H. Appleijy.

THE DEPARTMENT OF STATE IN T r\ f) {)

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APPENDIXES

Appendix No. I

Part I — Organizational History of the Department of State

The future is but the lengthened shadow of the past. A survey of the growth
of the Department of State from its beginning in 1789 to the present time is
therefore pertinent. In evaluating the picture of development, many factors
must be considered — the phenomenal growth of the United States from a small
group of 13 independent colonies to a world power, the emergence of world
problems which dwarf nation-to-nation relationships, and lastly, the transforma-
tion of the Department itself from a small, closely knit, intimate group into a
complex organization with enormously expanded personnel.

Milestones which will be used to illustrate the growth of the Nation and the
Department are the dates 1789-90, 1833, 1870, 1909, 1922, 1938, 1943, and 1946.
Charts for these years are included in order to supplement the textual treatment
by showing the growth of the various functions — by units and personnel. The
terms geographic, economic, information, intelligence, and administration are
used in their present sense, except that the controls function, now under the
jurisdiction of the Assistant Secretary for Administration, is grouped under
miscellaneous. The term miscellaneous also includes certain functions which
were the responsibility of the Department at one time, but which have sub-
sequently been dropped — such as Bureau of Domestic Records, Patent Office.
Supervisory and Staff connotes all top staff and advisory officials and the em-
ployees in their immediate offices — Legal Adviser, Assistant Secretaries, and up.
Since records were incomplete for the earlier years, it was necessary in some
instances to make approximate allocations of personnel to the various functions.

1789-90 — Birth of the Department. — In July 1789 the Department of Foreign
Affairs was established as the first executive Department under the Constitution,
and in September of the same year its name was changed to the Department of
State. The small agency of 5 persons and 1 part-time employee was charged
with the responsibility of handling the foreign activities of the infant Republic
and supervising certain domestic activities such as the Patent Office.

1191-1833 — Early growth. — While the wars of the French Revolution and of
Napoleon were claiming the attention of Great Britain, France, and Spain, the
United States was steadily developing — solidifying its governmental structure,
expanding westward, and building up its strength as a nation. By 1823 the
foundations of American foreign policy had been laid through the instrument of
the Monroe Doctrine and by pronouncement of our belief in freedom of the seas
and separation from foreign entanglements.

The Department of State grew during these years without benefit of organiza-
tional pattern. In 1833 Secretary Louis McLane reorganized the agency to in-
clude a Chief Clerk's Office and seven bureaus, each with specific responsibilities
which fall into the present day categories of political, general administration, for-
eign service administration, and miscellaneous. It is to be noted that organiza-
tional specialization on a geographic basis was initiated at this time in the
Diplomatic Bureau with a division of work by areas or regions.

183Jf-70 — Expansion. — During this period the United States, aided by skillful
diplomacy, expanded in the North American Continent. The Department was
tested by the task of preventing European interference in the Civil War in
support of the South and strengthened by its success in preventing the establish-
ment of a French empire in Mexico.

The Department reflected the expansion of the Nation, but an organizational
improvement was abandoned when formal bureau designations were eliminated in
1855. Although the organizational units continued to function informally on a
bureau basis, the pattern of operations was not clear cut. However, an improve-

911

912 INTERLOCKING SUBVERSION IN GOVERNMENT

ment occurred during these years when in 1853 and 1866, respectively, tlie offices
of Assistant Secretary and Second Assistant Secretary were created.

In 1870 Secretary Hamilton Fish formally reorganized the Department, finding
the designation of bureaus and the specific fixing of responsibilities essential to
its operations. Thirteen bureaus were established to carry out specific functions
with 4 of them under the direct supervision of the 2 Assistant Secretaries, but no
functional groupings were made. The embryonic geographic offices, created in
1833, were further developed by the establishment of the First and Second Diplo-
matic Bureaus and the First and Second Consular Bureaus. Identifiable organ-
izationally were iK)litical, administrative, and certain miscellaneous functions.
In addition, and in recognition of the increasing importance of trade and trade
relations, there was established a Statistical Bureau which may be considered
the forerunner of the economic offices.

1871-1909— National matunty.— By the end of the 19th century, the United
States attained national maturity and an important place in world affairs. The
Republic had concluded a war with Spain and expanded territorially by the
acquisition of Alaska, Midway. Hawaii, Puerto Rico, the Philippines, Guam, and
Wake. Under the "big stick" policy of Theodore Roosevelt, this expansion was
continued with intervention in the Caribbean by landing marines in Cuba, Haiti,
and Nicaragua, and with the building of the Panama Canal.

In the years >prior to World War I. industrialization of the American economy
progressed rapidly, reaching a point where manufactured articles comprised
approximately one-half of the total exix)rts. In the Far East, trade with Japan
increased ; and, with Great Britain, the United States insisted on the open-door
policy in China in order to foster eqiiality of commercial opportunity. Out of
this came reciprocity treaties, new colonial markets, and increased trade generally.

In spite of expansion in the Pacific and on the continent and the larger com-
mercial horizon, isolation from Europe and European power politics remained
our basic policy.

The increased prestige and ix)wer of the Nation was reflected in the workings
and organization of the Department. A survey of the 1909 picture, after the
reorganization under Secretary Philander Knox, shows the pattern of the agency
in the period preceding the First World War. Certain factors are noteworthy :

1. Five new divisions were added, four of which were organized on a geographic
basis.

2. Specific duties were assigned to the Third Assistant Secretary (office estab-
lished in 1875).

3. Additional executive positions, including the Counselor, were added in
recognition of the need for more staff and operational elements.

INTERLOCKING SUBVERSION IN GOVERNMENT

913

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914 INTERLOCKING SUBVERSION IN GOVERNMENT

4. The need was realized for special divisions to handle intelligence activities
(Division of Information), and international commercial affairs (Bureau of
Trade Relations).

5. An inordinately large number of organizational units reported to the
highest echelon with no grouping of like functions or duties.

6. An ill-detined difference existed with respect to the organizational status
of bureaus, divisions, and offices.

1910-22 — World power. — When World War I enveloped Europe in 1914, this
Nation was overwhelmingly in favor of neutrality. Despite great efforts to
maintain this position, our national security was endangered, and the United
States entered the war in 1917. With the Allied victory in 1918. the United
States emerged as a great and influential world power. President Wilson's
League of Nations plan was hailed by many as a panacea for all the ills of
international relations. However, American enthusiasm waned, and opposition
to any type of alliance grew during the period of conferences, debates, and
bargaining over the Treaty of Versailles and tlie League of Nations. Pacifism
and isolationism reemerged as the accepted tradition.

In analyzing the organizational pattern of the Department in 1922, one sees
the effect Of the First World War during which the Nation developed into a
power in world affairs. Functions were expanded, organizational units added,
and perscmnel increased. More specifically, the following factors are of interest:

1. More complete specialization of political work on a geographic basis (ad-
dition of two more political divisions) was effected, and the preferred organiza-
tional status was given to the divisions engaged in this work.

2. The information, intelligence, and economic functions increased in im-
portance.

3. The position of Under Secretary was created ; this official took over many
of the duties of the former position of Counselor which had been established in
1909.

4. Responsibility for supervision of organizational units was assigned to each
of the Assistant Secretaries — a return of the plan instituted in 1870 but aban-
doned in 187H since which time the trend had gradually swung back to the
1870 concept.

5. An attempt was made to group supervision by functions.

INTERLOCKING SUBVERSION IN GOVERNMENT

915

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916 INTERLOCKING SUBVERSION IN GOVERNMENT

1923-38 — Prelude to World War II. — The national sentiment in support of
pacifism and isolation returned. Attempts were made to eliminate war in the
Kellosg-Briand pact, the Washington and London Naval Disarmament Confer-
ences, and the Neutrality Acts of 1935 and 1937. The "good neishl:)or" program
and the Pan-American system were sponsored by the United States in order to
present a stronger American front against external aggression ; further, the
inter-American treaty of nonintervention guaranteed that the United States
would forego further "big stick" practices in this continent. In addition, the
Nation gave up its Caribbean protectorates and passed the Philippine Inde-
pendence Act.

From an economic standpoint the period was unstable. World War I had
changed the role of the United States from a debtor to a creditor nation ; over
half the nations of the world owed this country large sums of money. Yet
high protectionist tariffs throttled trade to such an extent that there were no
means by which debtor nations could make a satisfactory economic recovery
or by which creditor countries could increase their economic activities and
offset their "bad debt" ledger. The situation grew steadily worse, and by
1930 nation after nation had defaulted in payment of its debts ; depression
deepened, banks failed, and a worldwide economic crisis occurred. Reciprocity
agreements again became the objective of United States trade negotiations — ■
this time for the purpose of world economic appeasement as well as for our
own trade improvement.

From 1922 to 1988 international relationships disintegrated alarmingly. Ger-
many, Italy, and Japan committed acts of aggression and violence, despite
protests of the League of Nations and the United States. Spain was in the
throes of fascism. Communist Russia was an enigma to the democracies. This
troubled international situation was intensified further by worldwide economic
warfare.

P>y 1938 the State Department knew that war was likely but made no organ-
izational adjustments to meet this threatening contingency. The most notable
characteristics of this period are :

1. No progress had been made in the functional grouping of divisions and
offices under the Assistant Secretaries and the Under Secretary, indicating that
no advance planning was effected regarding the addition of new functions (for
example, see the Office of Philippine Affairs, established 1936).

2. The Division of Cultural Relations was established in 1938 in recognition
of cultural relations as a factor in international affairs.

3. Trade agreement negotiations increased the importance and size of the
economic divisions.

4. Despite a period of great change and evil forebodings, there was little
organizational adaptation between 1922 and 1938 to meet the changing environ-
ment and the new problems.

INTERLOCKING SUBVERSION IN GOVERNMENT

917

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918 INTERLOCKING SUBVERSION IN GOVERNMENT

1939-43 — World War II. — The totalitarian nations continued tiieir aggression
despite negotiations witli peace-seelving nations tlie world over. The United
States consistently proclaimed her neutrality and tried to bring about peace.
This failed, and in December 1941 Japan and Germany declared war on the
United States.

During World War II, the Department was called upon to assume major tasks
such as assuring friendly and cooperative relations with our allies, weakening
the enemy's position in v/orld affairs, and coordinating and guiding the foreign
activities of other Federal agencies. The Department was criticized as lacking
a liasic pattern of organization to assume effectively these enormous respon-
sibilities. A study of the Department in 1943, in the midst of war, brings forth
the following comments :

1. Growth and changes in economic functions of the Department from 1940
to 1943 were substantial. Emphasis on a functional economic organization in
the Department reflected the growing importance of economic consideration in
international affairs.

2. The establishment of top planning and coordinating committees indicated
(a) that the Department realized that such endeavors are a necessary prelude to
implementation of policy, and (b) that increased wartime responsibilities were
thrust upon the inadequate prewar framework.

3. The consolidation of the 6 political or geographic divisions into 4 in 1937
and the addition of 4 political advisers to guide them, represented the first change
in the political divisions since 1922, except the small Office of Philippine Affairs
and the Caribbean Office, which had been added in 1936 and 1941 respectively.

4. Functions were grouped indiscriminately and incoherently under the Assist-
ant Secretaries, with responsibility for like functions divided ; also some divisions
were accountable to several oflScials.

5. An excessive number of diverse organizational units reported directly to
the highest operating echelon, the Assistant Secretaries. A large number of
divisions reported to the Under Secretary who ostensibly was a policymaking
rather than an operating oflScial.

INTERLOCKING SUBVERSION IN GOVERNMENT

919

S.9.

920 INTERLOCKING SUBVERSION IN GOVERNMENT

19^6 — Reconversion and transition. — 1946 finds the world groping to solve the
problems of reconversion from World War II to peace on an international basis.
The hoped-for evolution of world affairs from diplomatic interplay between great
powers to a universal concern of all individuals for international cooperation
requires a revolution in organization and procedures in foreign affairs. The
United Nations is looked to for guidance in preventing another war, which, with
the advent of the atomic bomb and other weapons, threatens to destroy civiliza-
tion.

The Department of State represents the United States in this complex new
world. Hence, each phase of its resitonsibility is thrown into sharp focus as it
attempts to digest a multitude of new functions and employees which were
incorporated at the close of the World War II. The 1946 chart reflects the
influence of the two 1944 reorganizations (which obviated many of the organiza-
tional ills of the 1943 pattern). It also reflects the assumption of the functions
and personnel of the OflQce of War Information, Foreign Economic Administra-
tion, Army-Navy Liquidation Commission, Office of Inter-American Affairs, and
certain intelligence functions of the Office of Strategic Services, which were
appended to the Department in 1945 at the close of the war. Important aspects
of the current organization are :

1. Similar functions have been partially consolidated and grouped under divi-
sions, ofl3ces, and Assistant Secretaries.

2. Offices have been established in order to reduce the number of staff members
reporting to top-ranking officials and to fix the organizational status of Assist-
ant Secretaries, offices, and divisions. However, the great number of offices tends
to defeat the purixjse of the office structure.

3. The geographic or political offices have been established as the pivotal points
of coordination, although the functional offices are the pivots in certain areas of
action.

4. The need for increasing public and congressional understanding has been
recognized.

5. The Secretary's staff and coordinating committees have been established on
a top planning level with departmentwide representation in an effort to correlate
and harmonize postwar planning with top policy.

6. The Division of Management Planning has been created in order to resolve
administrative and organizational problems and plan for effective growth.

7. Specialized divisions have been added to cope with the problems of the
Foreign Service.

8. Certain specific growth factors are important — the addition of a special
"arm" for intelligence, the increase in informational and cultural activities, and
the increase in the number of the economic divisions.

9. The greatest organizational growth in the history of the Department oc-
curred between 1943 and 1946. From 49 operating organizational units in the
war year 1943, the Department has mushroomed to 18 offices and more than
80 divisions in 1946. Personnel similarly increased from 2,755 in 1943 to 9,602
positions in January 1946, which included 1,979 positions scheduled for liquida-
tion.

10. Although the large number of divisions emphasizes the variety of functions
and responsibilities of the Department, a study of the current chart suggests that
there is too fine a division of responsibility and therefore too much diffusion and
too little centralization.

INTERLOCKING SUBVERSION IN GOVERNMENT

921

922

INTERLOCKING SUBVERSION IN GOVERNMENT

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INTERLOCKING SUBVERSION IN GOVERNMENT 923

Summary. — As a prolog to the consideration of current operations and prob-
lems, the following may be useful :

1. Changes, reorganizations, and developments in the Department of State
have been related to national trends, world events, and the changing character
of international relationships. Adaptation to changed conditions has been slow.

2. Until the early 1930's the Department was relatively small, yet suflBciently
large to administer an isolationist foreign policy.

3. Until the early 1930's the Department found it possible to function as a
small, intimate group with the close personal ties in the geographic-political
divisions serving as the major coordinating influence.

4. Dominating the Department and influencing its methods and organization
are the traditions and outlook peculiar to the oldest executive department of
the Government and its Foreign Service career personnel.

5. The political and administrative (or service) branches are the oldest in
the Department and both have been conservative in their growth. However,
the administrative or service units have become much larger in size than the
political divisions which have remained small, largely because of the desire
of their oflScers to work informally in smaU groups.

6. The economic, intelligence, and informational activities show a greater
growth in recent years than the older branches and now threaten, by weight
of sheer nimibers, to submerge or subordinate the geographic political divisions.

7. The greatest percentage of growth is found in the period between 1938 and
1946. This reflects the abnormal increases of functions and duties during World
War II and the addition of many postwar functions.

S. In 1944, two major reorganizations altered materially the old structure
and established the present framework. The circumstances attending these re-
organizations were such that attempts to clarify organizational status and fix
responsibility have been unsatisfactory both from the standpoint of the rela-
tionship of relative jurisdiction and primacy between the various area and
functional groups.

9. The Department's growth has not been directed according to a carefully
predetermined pattern. Various branches have assumed responsibility only as
it has been thrust upon them by national and world events. Organizational
difficulties have then been worked out in great haste, under pressure, and by
trial and error. New divisions and units have been added in a similar fashion.
Complicating factors are :

(a) The very rapid expansion in both personnel and number of units
during World War II.

(6) The additional organizations and functions transferred to the De-
partment of State after World War II.

(c) The difficulty of gearing together and relating (1) organizational
entities established on a geographic basis and those organized for specific
functions, and (2) the dealings of the United States with individual nations
and the relationships of United States with the United Nations, regional
associations, and occupied acreas.

{d) The unresolved conflict between specialization and the desire of old
established units to be self-sufficient and thus to develop decentralized aux-
iliary services such as intelligence, information, economics, cultural, and
administrative activities.

924

INTERLOCKING SUBVERSION IN GOVERNMENT

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INTERLOCKING SUBVERSION IN GOVERNMENT

925

926 INTERLOCKING SUBVERSION IN GOVERNMENT

Appendix II

Report of the Organization of the Department of State, January-June 1946

(Pp. 38-39)

Special Political Affai7-s {SPA). — The Office of Special Political Affairs was
established in recognition of the special importance of having a central office for
the support of our participation in United Nations and certain othef related
International organizations.

Although older than .some of the offices such as intelligence and information,
SPA is still new in the sense that there are no agreed concepts governing its
current functions. When first established, the Office of Special Political Affairs
was to act for the Department in developing principles of organization and pro-
cedure for U. N. and other international groups. These activities naturally
called for coordination of the Department's policies "across the board" — geo-
graphic and functional — insofar as they related to such principles.

Now that organization and procedures for the United Nations have been estab-
lished, the question arises as to the appropriate future function of SPA in the
Department. Administrative matters in connection with international confer-
ences are the responsibility of the International Conferences Division, under the
Assistant Secretary for Administration. Does this mean that SPA has no legiti-
mate functions in that field? Policy matters involving the Department's substan-
tive work are handled liy the U. X. delegation which often deals directly with
the substantive offices. Where does SPA enter into this relationship? At this
stage of SPA's organizational existence, its future functions must be determined.
Opinions vary throughout the Department as to what responsildlities it could
most u.sefully assume. In view of the increasing importance of international
cooperation, there will be an increasingly greater need for specialists in this
area. One phase of such siiecialization is to furnish expert advice of the Depart-
ment of the Government as a whole on the various procedures used in interna-
tional organization. Another might be the continued coordination of general
policy to insure that organization procedures facilitate the fullest possible
execution of this policy. However, in some sections of the Department it is
believed that SPA should be given a broader charter of authority. For example,
there exists the opinion that SPA should be the focal point of ct)ordination for
the Department and the U. N. delegation for substantive and administrative
matters — that all matters in connection with international cooperation should
have an organizational "home base." The view lias also been advanced that SPA
should follow through as the coordinator of interdepartmental participation in.
international organizations and the leader among other Federal representations,
thereby insuring protection of all phases of United States policy.

It is evident that the issues involved in SPA's future functions are related to ,
the Department's operations. For this reason, careful, analytical consideration
should be given to its scope of operations.

Unclear jurisdiction. — Collective harmony is conspicuously absent in the De-
partment's current operations. Intradivisional and intrafuuctional confusion
exists because no clear-cut objectives, function, or areas of jurisdiction have
been established. Although current orders and regulations attempt to provide
a charter for this purpose, they either are not followed or do not present a work-
able and realistic arrangement. For instance, the relationship lietween the geo-
graphic offices and other organizational units is hazily defined in the official
orders (departmental order 1301, December 1044) :

"The geographic offices shall be responsible for the formulation of overall
United States policy toward the countries within their jurisdiction and for
coordination, as to these countries, of the programs and activities of other offices
and divisions of the Department, and of other Federal agencies, with overall
United States foreign policy."

This statement does not in any way suggest tliat in certain functional fields
the authority of the geograpliic offices is limited. On the other hand, the lan-
guage used in defining the roles of certain functional offices, e. g. —

"Tlie Office of Special Political Affairs shall have responsibility, under the
general direction of the special assistant to the Secretary in charge of inter-
national organization and security affairs, for the formulation and coordination
of jwlicy and action relating to such affairs, with special emphasis on the
maintenance of international peace and security through organized action.

INTERLOCKING SUBVERSION IN GOVERNMENT 927

"The OflBce of Controls shall have responsibility, under the general direction
of the Assistant Secretary for Administration, for formulating and coordinating
policy and action in all matters pertaining to the control activities of the
Department of "State."

Similar all-inclusive language has been used in defining the responsibility
and jurisdiction of the .economic offices and the information offices.

In the actual operations of the Department this confusion is strikingly and
objectively reflected in the analysis of the outgoing communications for a 48-hour
period, which shows hew diffused is the responsibility for handling the Depart-
ment's business (see accompanying chart). Matters relating to the protection
(if United States business interests abroad, to the assistance of United States
citizens abroad, and to departmental and foreign service administration, were
handled in almost all of the offices of the Department. Answers to routine
letters from the public requesting information about established policy and other
matters, which could easily have been handled by the information offices, were
dealt with by many geographic and economic offices and, in many cases, by the
Office of Controls.

Coordination. — Because of the compartmentalization between the offices of the
Department, a number of devices and procedures have grown up, the purpose of
which is to facilitate unified policy development and action in the numerous
offices and divisions. In addition to a great deal of informal consultation by
the officers at all levels, the three main devices are the circulation of information
copies and summaries, the clearance system, and the committee system.

Circulation, of information. — Free and easy access to information on policy
developments and other intelligence is essential to the smooth and coordinated
functioning of the Department. It is necessary that this information be dis-
tributed horizontally as well as vertically.

Although a great deal of information passes through the regular administrative
channels, one of the major complaints of the lower echelons, as well as in certain
functional offices, has been that information is not readily available. However,
great improvement has been made in this ari-angment during the last few years,
and even though there is still a tendency to limit access to important policy
information, or highly special reports from the field, to a few individuals at the
top, the situation is far better than ever before.

On the other hand, with respect to less highly classified information, there
is danger that too much information is being circulated at the present time, or
rather that there is too much duplication in its circulation. This practice tends
to make the work of every desk officer too much of a paper-shuffling operation
as he is kept busy hastily moving routine information material from his incoming
to his outgoing basket.

BOSTON PUBLIC LIBRARY

3 9999 05445 3954

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