Before the CIA, There Was the Pond

It was a night in early November during the infancy of the Cold War when the anti-communist dissidents were hustled through a garden and across a gully to a vehicle on a dark, deserted road in Budapest. They hid in four large crates for their perilous journey.

Four roadblocks stood between them and freedom.

What Zoltan Pfeiffer, a top political figure opposed to Soviet occupation, his wife and 5-year-old daughter did not know as they were whisked out of Hungary in 1947 was that their driver, James McCargar, was a covert agent for one of America's most secretive espionage agencies, known simply as the Pond.

Created during World War II as a purely U.S. operation free of the perceived taint of European allies, the Pond existed for 13 years and was shrouded in secrecy for more than 50 years. It used sources that ranged from Nazi officials to Stalinists and, at one point, a French serial killer.

It operated under the cover of multinational corporations, including American Express, Chase National Bank and Philips, the Dutch-based electronic giant. One of its top agents was a female American journalist.

Now the world can finally get a deeper look at the long-hidden roots of American espionage as tens of thousands of once-secret documents found in locked safes and filing cabinets in a barn near Culpeper, Va., in 2001 have finally become public after a long security review by the Central Intelligence Agency.

The papers, which the Pond's leader tried to keep secret long after the organization was dissolved, were placed in the National Archives in College Park, Md., in 2008 but only opened to the public in April. Those records plus documents obtained by The Associated Press in the past two years from the FBI, CIA and other agencies under the Freedom of Information Act portray a sophisticated organization obsessed with secrecy that operated a network of 40 chief agents and more than 600 sources in 32 countries. The AP has also interviewed former officials, family members, historians and archivists.

The Pond, designed to be relatively small and operate out of the limelight, appeared to score some definite successes, but rivals questioned its sources and ultimately, it became discredited because its pugnacious leader was too cozy with Sen. Joseph McCarthy and other radical anti-communists.

The documents also highlight issues still relevant today: the rivalry among U.S. intelligence agencies that have grown to number 16, the government's questionable use of off-the-books operations with budgets hidden from congressional oversight, and the reliance on contractors to undertake sensitive national security work.

Created by U.S. military intelligence as a counterweight to the Office of Strategic Services, the forerunner of the CIA, it functioned as a semiautonomous agency for the State Department after World War II and ended its days as a contractor for the CIA with links to J. Edgar Hoover's FBI.

The organization counted among its exploits an attempt to negotiate the surrender of Germany with Hermann Goering, one of Adolf Hitler's top military leaders, more than six months before the war ended; an effort to enlist mobster Charles "Lucky" Luciano in a plot to assassinate Italian dictator Benito Mussolini; identifying the location of the German heavy water plants doing atomic research in Norway; and providing advance information on Russia's first atomic bomb explosion.

There were other tangible successes, such as planting a high-level mole in the Soviet secret police and, in a major operation code-named "Empire State," the Pond paid a group of dissidents behind the Iron Curtain with CIA funds to obtain cryptographic systems to break coded messages from Moscow.

But it was Pfeiffer's successful escape that was among the most high-profile operations, garnering headlines, although the Pond's role was kept secret for years.

McCargar, a State Department official who secretly was the Pond's agent in Budapest, had been ordered to find a way to get Pfeiffer and his family out of the country. The Hungarian was the leader of a small but increasingly popular anti-communist party that had made gains in August elections, and he had begun to get death threats.

McCargar coordinated the escape with the help of fellow State Department employee Edmund Price, also identified in the papers as working for the Pond. But it was McCargar, armed with a pistol, who drove them from Budapest, past four road blocks. At one, a Russian guard asked to see what was in the four crates. McCargar bribed him with cigarettes.

They arrived in Vienna, a hotbed of international intrigue, where the U.S. shared control with their allies, the French and the British, as well as the Soviets. Against this politically fraught backdrop, Pfeiffer and his family were taken to an airfield and spirited away to Frankfurt and on to New York. They arrived in the U.S. on Nov. 12 as heroes of the anti-communist opposition.

One of the escapees, Pfeiffer's daughter, Madeline, told the AP she remembered sitting between her mother's legs in one crate and that she was given sleeping pills to keep her quiet.

"It is strange to realize that I have lived though this, and that my parents lived through this," said Madeline Pfeiffer, 67, now living in San Francisco. On the 50th anniversary of their flight from Hungary, she said she sent McCargar a bottle of cognac - what he and her parents drank after escaping. Two other dissidents were taken out with them.

The head of the Pond was Col. John V. Grombach, a radio producer, businessman and ex-Olympic boxer who kept a small black poodle under his desk. He attended West Point, but didn't graduate with his class because he had too many demerits, according to a U.S. Army document. His nickname was "Frenchy," because his father was a Frenchman, who worked in the French Consulate in New Orleans.

The War Department had tapped Grombach to create the secret intelligence branch in 1942 as a foundation for a permanent spy service. Grombach said the main objectives were security and secrecy, unlike the OSS, which he said had been infiltrated by allies and subversives. It was first known as the Special Service Branch, then as the Special Service Section and finally as the Coverage and Indoctrination Branch.

To the few even aware of its existence, the intelligence network was known by its arcane name, the Pond. Its leaders referred to the G-2 military intelligence agency as the "Lake," the CIA, which was formed later, was the "Bay," and the State Department was the "Zoo." Grombach's organization engaged in cryptography, political espionage and covert operations. It had clandestine officers in Budapest, London, Lisbon, Madrid, Stockholm, Bombay, Istanbul and elsewhere.

Grombach directed his far-flung operations from an office at the Steinway Hall building in New York, where he worked under the cover of a public relations consultant for Philips. His combative character had earned him a reputation as an opportunist who would "cut the throat of anyone standing in his way," according to a document in his Army intelligence dossier.

In defining the Pond's role, Grombach maintained that the covert network sought indirect intelligence from people holding regular jobs in both hostile countries and allied nations - not unlike the Russian spies uncovered in June in the U.S. while living in suburbia and working at newspapers or universities.

The Pond, he wrote in a declassified document put in the National Archives, had a mission "to collect important secret intelligence via many international companies, societies, religious organizations and business and professional men who were willing to cooperate with the U.S. but who would not work with the OSS because it was necessarily integrated with British and French Intelligence and infiltrated by Communists and Russians."

On April 15, 1953, Grombach wrote that the idea behind his network was to use "observers" who would build long-term relationships and produce far more valuable information than spies who bought secrets. "Information was to be rarely, if ever, bought, and there were to be no paid professional operators; as it later turned out some of the personnel not only paid their own expenses but actually advanced money for the organization's purposes."

The CIA, for its part, didn't think much of the Pond. It concluded that the organization was uncooperative, especially since the outfit refused to divulge its sources, complicating efforts to evaluate their reports. In an August 1952 letter giving notice that the CIA intended to terminate the contract, agency chief Gen. Walter Bedell Smith wrote that "our analysis of the reports provided by this organization has convinced us that its unevaluated product is not worth the cost." It took until 1955 to completely unwind the relationship.

Mark Stout, a former intelligence officer and historian for the International Spy Museum in Washington, analyzed the newly released papers and said it isn't clear how important the Pond was to U.S. intelligence-gathering as a whole. "But they were making some real contributions," he said.

Matthew Aid, an intelligence historian and author of "The Secret Sentry: The Untold History of the National Security Agency" who has reviewed some of the collection, said there was no evidence the Pond's reports made their way to decision-makers. "I'm still not convinced that Grombach's organization was a worthwhile endeavor in World War II and even less so when it went off the books," he said.

What it may have lacked in quality and influence, however, the Pond certainly made up with chutzpah.

One of the outfit's most unusual informers was a French serial killer named Marcel Petiot, Grombach wrote in a 1980 book.

The Secret Intelligence Branch, as he referred to the Pond, began receiving reports from Petiot during the war. He was a physician in Paris who regularly treated refugees, businessmen and Gestapo agents, but he also had a predilection for killing mostly wealthy Jews and burning their bodies in a basement furnace in his soundproofed house. He was convicted of 26 murders and guillotined in 1946.

Nevertheless, Grombach considered him a valuable informer because of his contacts.

One cable discovered among the newly released papers appears to confirm the Pond was tracking Petiot's whereabouts. In the undated memo, the writer says Petiot was drawn by a Gestapo agent "into a trap to be arrested by the Germans." Petiot was briefly arrested in 1943 by the Gestapo.

Such sources were often feeding their reports to top operatives - often businessmen or members of opposition groups. But there were also journalists in the spy ring.

Ruth Fischer, code-named "Alice Miller," was considered a key Pond agent for eight years, working under her cover as a correspondent, including for the North American Newspaper Alliance. She had been a leader of Germany's prewar Communist Party and was valuable to the Pond in the early years of the Cold War, pooling intelligence from Stalinists, Marxists and socialists in Europe, Africa and China, according to the newly released documents.

But it was the help from businesses in wartime that was essential to penetrating Axis territories.

The Philips companies, including their U.S. division, gave the Pond money, contacts, radio technology and supported Grombach's business cover in New York. Philips spokesman Arent Jan Hesselink said the company had business contacts with Grombach between 1937 and 1970. He added that they could not "rule out that there was contact between Philips and Grombach with the intention of furthering central U.S. intelligence during the war."

The Pond laid the groundwork and devised a detailed postwar plan to integrate its activities into the U.S. Rubber Co.'s business operations in 93 countries. It is unknown if the plan was ever carried out. The Pond also worked with the American Express Co., Remington Rand, Inc. and Chase National Bank, according to documents at the National Archives.

American Express spokeswoman Caitlin Lowie said a search of company archives revealed no evidence of a relationship with Grombach's organization. Representatives of the other companies or their successors did not respond to requests for comment.

The Pond directed its resources for domestic political ends, as well.

In the 1950s, Grombach began furnishing names to McCarthy on supposed security risks in the U.S. intelligence community. By then, the Pond was a CIA contractor, existing as a quasi-private company, and the agency's leadership was enraged by Grombach's actions. It wasn't long before the Pond's contract was terminated and the organization largely ceased to exist.

The CIA withheld thousands of pages from the National Archives collection of Grombach papers, including eight rolls of documents on microfilm; the National Security Agency kept back devices used to send coded messages. The CIA also declined a Freedom of Information Act request by the AP detailing its relationship to the Pond, which the AP has appealed.

Grombach wrote to the Hoover Institution Archives at Stanford University, dated June 10, 1977, indicating most of his classified papers would go to the American Security Council Foundation, an anti-communist group that works on national security policy. Grombach died in 1982.

Henry A. Fischer, the council's executive director, said safes at the 683-acre Longea Estate - site of the council's former Freedom Studies Center - were mistakenly removed by contractors hired to transfer the contents of its Boston, Va., library. He said he had been told by staff of the error when FBI agents were called to examine them. "I have no idea what they were going to do with them."

FBI historian John Fox said only one safe was removed from the property by the contractors and drilled open, its contents turned over to the CIA, which informed the bureau about the discovery in December 2001. Fox said the FBI recovered four other safes from the council and took them to Quantico to be opened. After an investigation, Fox said the remaining documents were transferred to the CIA.