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By FOIA Research
on September 14, 2020 - Last updated: December 31, 2020

Operation Rusty

Reinhard Gehlen was chief of the Wehrmacht Foreign Armies East military intelligence service on the eastern front during World War II, and spymaster of the CIA-affiliated anti-Communist Gehlen Organisation (1946–56) and the founding president of the Federal Intelligence Service (Bundesnachrichtendienst, BND) of West Germany (1956–68) during the Cold War.

Operation Rusty was the name of a US Military Intelligence Service project in the immediate post-WWII period that combined Hermann Baun's espionage group of former Abwehr agents (project KEYSTONE) and Reinhard Gehlen's group of former Foreign Army East staff (project BOLERO) into a single espionage organization. Operation Rusty resulted in the Gehlen Organization, named after its leader Reinhard Gehlen, former head of the Foreign Armies East (Fremde Heere Ost, FHO), which had done espionage for the Nazi Wehrmacht at the Eastern front. The Gehlen Org, which at first consisted entirely of former FHO personnel, was transformed into the Bundesnachrichtendienst, to this day Germany's foreign intelligence service.

History

Shortly before the end of World War II, on April 4, 1945, Gehlen and his deputy, Gerhard Wessel, both still leading the FHO, met with Hermann Baun, a German Abwehr officer who had coordinated espionage close to the front during the Wehrmacht's entire Russian campaign, as well as his adjutant Graber in Bad Elster. They agreed to offer key personnel and materials to the Americans once the war was over. This meeting has also  become known as the “Pact of Bad Elster” (Pakt von Bad Elster). The attendees decided to give all the FHO members the code name “Fritz,” and the Abwehr members the code name “Otto.”

According to Heinz Höhne's and Herman Zolling's biography of Reinhard Gehlen1:

Each of them could bring with him a house-warming present—from FHO complete information on the Russian armed forces including a card-index of Red Army personalities, from Walli I a circuit of agents stretching as far as Moscow.

Baun had already prepared an operational plan for the new war against the Red Army to be conducted on German soil. After the collapse of the Wehrmacht it visualised: training and employment of saboteurs and raiding parties behind the Soviet lines; military espionage against the Red Army; preparation of arms caches for a subsequent anti- Soviet underground movement; formation of combat units of a maximum of sixty men; installation of radio reporting stations; dissemination of printed and oral anti-bolshevist propaganda. ...

On 5 April Gehlen issued his penultimate order in FHO headquarters at Zossen. The copies of the card-index, the reports, the air photographs, the appreciations and the files were packed into fifty steel cases and Gehlen designated certain localities at Wendelstein and in the Allgau as the hiding places for this invaluable secret-service library on the Soviet Union.

Chart showing the hierarchy within Fremde Heere Ost as of September 1944, with Reinhard Gehlen and his adjutant Gerhard Wessel at the top. Following the collapse of the Nazi regime, Gehlen and his consorts offered the U.S. access to the FHO’s intelligence archives, and also to his anti-communist espionage network in the Soviet Union. Subsequently, Gehlen was made the head of the Gehlen Organization, the precursor to Germany’s current foreign secret service, the “Federal News Service” (Bundesnachrichtendienst, BND), which at first consisted entirely of former FHO personnel.

Although Gehlen and Baun had struck a deal to hand themselves in to the Americans together, the circumstances did not allow for their reunion.

On May 22, 1945, Gehlen surrendered to the Counter Intelligence Corps (CIC) of the U.S. Army in Bavaria and was taken to Camp King, near Oberursel, where he was interrogated by Captain John R. Boker. The American Army recognized his potential value as a spymaster with great knowledge of Soviet forces and anti-communist intelligence contacts in the USSR. In exchange for his liberty and the liberty of his command (prisoners of the U.S. Army), Gehlen offered the CIC access to the FHO’s intelligence archives, and to his anti-communist espionage network in the Soviet Union. Boker removed his name and those of his Wehrmacht command from the official lists of German prisoners of war, and transferred seven FHO senior officers to join Gehlen.

A little more than two months later, on July 29, 1945, the then Lieutenant Colonel Hermann Baun voluntarily handed himself to the Americans in Hinterberg near Sonthofen, in the South of Germany, and was held captive in the Allgäu area until September 1945. The Americans, who had specifically searched for Baun, hoped that he would render in-depth knowledge about the Soviet Union, the Red Army and contacts to intact agent networks. The first preliminary questioning of Baun took place on August 16, 1945, in the interrogation center of the 3rd US Army Interrogation Center in Freising, near Munich.

Baun and Gehlen, each on their own, managed to win over the Americans to reemploy them (and their colleagues) as spies. According to Heinz Höhne and Hermann Zolling2:

It is not possible today to say with complete certainty who was ultimately the first to make contact with more influential American circles in accordance with the Bad Elster agreement. Baun’s friends maintain that the credit should go to him; with American help, they say, he had already gathered his people around him in the POW camp and assured them of better living conditions—white bread and real coffee— while Gehlen was still behind the barbed wire vainly trying to attract the attention of junior CIC functionaries. If Baun did in fact make his mark more quickly but did not avail himself of the opportunity to intercede on Gehlen’s behalf, this may be a reason for the subsequent hostility between the two men. It would at least partially explain the antipathy shown by Gehlen to ex-Abwehr officers (Baun came from the Abwehr). Gehlen’s supporters maintain that Baun attempted to do business with the Americans on his own account to ensure for himself the senior position in the band of German secret-service auxiliaries.

According to the CIA historian Kevin Ruffner3:

The announcement of his arrest and the distribution of a Preliminary Interrogation Report raised great concern at Army G-2 because the Soviets now demanded the extradition of both Baun and Gehlen.The Army, however, refused to accede to Soviet demands and secluded Baun and several other FHO personnel at the Military Intelligence Service Center (MISC) at Oberursel on the outskirts of Frankfurt (also known as Camp King and later officially designated as the 7700th European Command Interrogation Center). The small group, including Gerhard Wessel, who had succeeded Gehlen as the head of FHO in 1945, was quartered at the “Blue House,” where Baun planned to develop a full-scale intelligence organization. According to SSU, the Army’s G-2 in Germany wanted to use Baun to resurrect his Abwehr network against the Soviets. This proved difficult, and SSU reported that it “advised them [the US Army] to interrogate Baun at length and have nothing to do with his schemes for further intelligence activity.”

Judging from an USFET document from May 11, 1946, entitled "Operations of Blue House Project," the operation was first located in a "General's house" in Wiesbaden (21 June - 20 September 1945), but later in the hunting lodge of the Opel family near Oberursel.4

On September 20, 1945, Gehlen and three "Fritz" associates were flown from the American Zone of Occupation in Germany to the U.S., to become spies for the U.S. Government, where they were extensively questioned. According to Höhne and Zolling5:

As far as Gehlen remembers, he was allowed to take with him six of his officers from FHO; they included Major Albert Schoeller, ex-deputy head of Group I (daily enemy situation report), Major Horst Hiemenz, ex-head of Group II (overall Soviet Russian situation). Colonel Heinz Herre, until 1943 senior General Staff Officer of FHO and, having been head of the training section in the 1st Division of the Vlassov Army, an outstanding expert on anti-communist trends in the Soviet Union, and finally a desk officer, Colonel Konrad Stephanus.

According to the CIA historian Kevin Ruffner, "Gehlen had recommended that Herman Baun be contacted to provide further information about the Soviets while the general worked in the United States."3

According Kevin Ruffner6:

The Army planned to provide Operation RUSTY with US intelligence reports for comments and insight. Gehlen's Evaluation Reports, [John R.] Deane expected, "will be of great value to the G-2 Division in that they will furnish the closest thing to finished intelligence that can be obtained from sources other than US." Deane's optimistic outlook indeed spurred the Army to submit more requests to Operation RUSTY, and Baun quickly expanded his collection efforts to meet the Army's insatiable appetite for information on the new threat in Europe.

On October 10, 1945, Baun presented the Americans with a concept he had developed for an espionage and counter-espionage organization (code name: Keystone). According to Kevin Ruffner7:

In November 1945, in fact, the German Mission had responded to a request by General Sibert that SSU take over Baun’s operation from the Army. After reviewing Baun’s plans, SSU rejected them outright, calling them “rather grandiose and vague suggestions for the formation of either a European or worldwide intelligence service to be set up on the basis of wartime connections of Oberst Baun and his colleagues, the ultimate target of which was to be the Soviet Union.” SSU found a number of shortcomings with the employment of Baun, including cost, control, and overall poor security measures. The fact that the Russians wanted to question Baun and Gehlen, as well as other German intelligence figures, also did not sit well with the American intelligence organization.

In November 1945, Baun traveled through the American occupation zone to look for former Abwehr employees (“Otto”). They were accommodated in a small hotel in Oberursel, close to the US Military Intelligence Service Center at Camp King. On December 10, 1945, the US War Department issued a permit for espionage activities of the “Group Baun.” The brigadier general Edwin L. Sibert, G2 of the United States Forces European Theater, was directly responsible for the deployment of Baun. Sibert put Fritz and Otto together in the so-called “Operation X.”

According to the historian Giles Scott-Smith8:

In the summer of 1945 G-2 (US army intelligence) officer John Boker and his superior General Sibert tried to initiate “Operation X” to allow Gehlen’s group to reassemble and show what they could produce. When Gehlen and six others were suddenly flown to Washington for interrogation at US army intelligence headquarters, Sibert continued to gather other Gehlen associates and former Abwehr (German military intelligence) personnel at the US Detention and Interrogation Center in Oberursel. Operation X became Operation Rusty. Following Sibert’s departure in 1946, the G-2 apparatus maintained its hold over the Gehlen Organization via its liaison officers John Deane and Eric Waldman.

In early 1946, Baun’s focus was on counter-espionage in order to identify Soviet espionage in the American zone of occupation. Alfred Bentzinger was commissioned by Baun to set up “Agency 114” (Dienststelle 114) in Karlsruhe.

From April 1, 1946, the focus shifted to military reconnaissance in the Soviet occupation zone. This date was also the official starting signal for “Operation Rusty,” the effort of building up the nucleus for a future German secret service, whose first leader was Baun. In building up the organization, Baun (codename: “Berndt”) at first loosely incorporated former structures of the Wehrmacht's frontline reconnaissance against the Soviet Union, for which he had been responsible during World War II. He set up a staff under his leadership as well as several centrally organized departments. The staff was housed in a separate area within the U.S. Military Intelligence Service Center at Camp King, Oberursel. After August 1946, the Procurement Staff was transferred to a former hotel in Schmitten, 15 kilometers away (code name: “Dustbin”).9 For the staff personnel, Baun mainly relied on former members of the “Walli I” Abwehr control center. The evaluation section of the staff, headed by Gustav-Adolf Tietze, analyzed the reports procured by the field organizations according to novelty value and credibility. The review was divided into four thematic areas: military, economic, political, and counter-espionage/anti-espionage.10

By late summer 1946, he had 124 full-time employees (no source). However, the reactivation of old agent networks of the Abwehr and Walli I did not succeed. The main sources of information were interrogations of returning prisoners of war and refugees. Added to this was a modest telecommunications reconnaissance.11

Gehlen returned from the USA on July 9, 1946.12 The headquarters of the East Reconnaissance Unit, codenamed "Operation Rusty," which operated under American command, was at Oberursel in the Taunus Mountains. On July 15, 1946, the so-called "Blue House" became the headquarters of the evaluation department.

On the German side, Gehlen had the responsibility for "Operation Rusty," therefor the designation Gehlen Organization (GO) was established.

The CIA historian Kevin Ruffner provides the following description of Operation Rusty in Eagle and Swastika: CIA and Nazi War Criminals and Collaborators13:

In the summer of 1946, the Army returned Gen. Gehlen and the remaining FHO members to Germany. At this point, Lt. Col. John R. Deane, Jr., the operations officer at the Military Intelligence Service Center published his plans to merge Gehlen's BOLERO group with Baun's already existent staff, known as KEYSTONE. Gehlen would coordinate the functions of both elements of the German organization while he had direct responsibility for the Intelligence Group, which provided evaluations to economic, military, and political reports obtained by agents of Baun's Information Group. The Army designated the entire organization Operation RUSTY, under the overall supervision of Col. Russell Philp, Lt. Col. John R. Deane, Jr., and Capt. Eric Waldman, who preceded Gehlen's return to Germany from Washington. ... By October 1946, Gehlen and Baun claimed to have some 600 agents operating throughout the Soviet zone of Germany, providing the bulk of intelligence on the Russian Order of Battle."

According to the historian Richard Breitman et al.14:

Gehlen returned to U.S.-occupied Germany in July 1946 with authorization to reconstitute the FHO, including the Walli networks that Baun had been pulling together. From the moment Gehlen returned through July 1, 1949, the U.S. Army was his principal sponsor. In this period, the Gehlen project acquired the code name “Rusty” and grew from a few hundred veterans of the FHO and the remnants of the Walli networks to encompass about four thousand officers and agents. Rusty’s operations, which Baun continued to supervise for Gehlen, also spilled out from the eastern zone of Germany to the French zone of occupation, to occupied Austria, Italy, and Soviet-controlled Poland and Romania. Newly released documents from this period indicate that, despite the exponential growth in Rusty’s activities and payroll, the number of U.S. Army officers assigned to monitor the organization remained at two. United States supervision, such as it was, in effect meant U.S. control over the logistical and financial transfers to Gehlen. His U.S. minders took care that he had the chocolate, women’s cosmetics, gas, and cigarettes needed to barter on the blackmarket for additional operational money and the U.S. dollars that would also be traded at a profit for the still-used Reichsmark. As for operational control, there was none.

According to Kevin Ruffner15:

By October 1946, Gehlen and Baun claimed to have some 600 agents operating throughout the Soviet zone of Germany who provided the bulk of intelligence on the Russian order of battle. As the Army's demands grew, Operation RUSTY transformed from a select cadre of German General Staff officers to large group that suffered from poor cohesion and mixed allegiances. In addition to covering the Soviet zone, Operation RUSTY took on new missions in Austria and other areas of Europe as well as broadened wartime contacts with anti-Communist emigre groups in Germany and with members of the Russian Vlasov Army. The few American officers assigned to the Blue House barely knew the identities of RUSTY agents, thus making it difficult to confirm the validity of German reporting. Baun's recruiting and training of his agents proved haphazard while their motivation also raised questions because of their black market activities. Throughout the Western Allied zones of Germany, men and women openly claimed to be working for American intelligence, leading to many security breaches which undermined RUSTY's overall effectiveness.

On December 19, 1946, a meeting was held in New York City "to consider Operation Rusty." The attendees were: Allen Dulles, W. H. Jackson, Col. E. K. Wright, General Edwin Sibert, Richard Helms, Samuel Bossard, Col. Donald H. Galloway, Col. L.L. Williams and Lt. Col. John Deane.

1947

In February 1947, Gehlen took over the overall management of Operation Rusty. Baun remained in charge of procurement until April 1947. Then he was deposed by Gehlen and should henceforth deal with reconnaissance against the Soviet Union. The relationship between Gehlen and Baun deteriorated to a degree that Gehlen apparently even considered killing Baun. Der German Welt writes in that regard16:

"Why don't you kill Baun, if you can reconcile that with your conscience?" According to Gerhard Wessel's diary, Reinhard Gehlen said that to his confidant and deputy in March 1948. ... Because Gehlen desperately needed the former employees of Baun's control center to build up his "Gehlen Organization," he had to work with the charismatic but difficult officer. Baun, on the other hand, was quite willing to cooperate, "but had other ideas about a German intelligence service against the East," says military historian Rolf-Dieter Müller.

Stephen Dorril mentions some of the atrocities perpetrated in the framework of Operation Rusty17:

According to Fletcher Prouty, who was responsible for US Air Force air support for CIA missions overseas, a series of assassinations was undertaken by 'the best commercial hit men you have ever heard of. Known as 'mechanics', they were 'Ukrainians, mainly. Eastern Europeans, Greeks, and some Scotsmen. I don't know how the Scotsmen got in there, but there they were.' Prouty asserts that teams of 'mechanics' were used in cross-border infiltration operations to rescue agents and in the murders of alleged Soviet agents. During 1947, a joint British/US emigre espionage network infiltrated with agents organised by Soviet and Czech Intelligence was 'liquidated' as part of Operation RUSTY. To mask the deaths, the killings were attributed to factional violence among rival Ukrainian groups.

On July 1, 1949, after negotiations with Gehlen, the CIG (direct predecessor of thee CIA) took over the trusteeship of the Gehlen organization from the US military,18 and the code name was changed to "Operation Zipper." On September 18, 1947, the Central Intelligence Agency was officially created. On December 6, 1947, the Gehlen Org, with coworkers as well as their families, moved into a real estate in Pullach nearby Munich - the former "Rudolf Hess Settlement" (Rudolf-Heß-Siedlung). Between 1936 and 1938, the Rudolf Hess Settlement was built as a residential complex for Nazi big wigs, according to the plans of the architect Rodrich Fick. For decades the place name became synonymous with German reconnaissance abroad. Internally, the property was referred to as "Camp Nikolaus" since the move happened on Christmas day.

The Pullach compound close to Munich, a location the US Army had acquired for the Gehlen Organization in 1949. It was built in the 1930s for senior Nazi figures under the oversight of Martin Bormann. The BND moved its headquarters from Pullach to Berlin in 2017.

According to Germany's foreign intelligence service BND, the successor of the Gehlen Org, it was not before November 1949 that Gehlen informed Vice Chancellor Blücher, Federal Minister of the Interior Dr. Heinemann, and Ministerial Counselor Blankenhorn of the Federal Chancellery about the existence, tasks, and possibilities of the GO.18

According to Peter McFarren and Fadrique Iglesias, the habit of resorting to old Nazi networks to staff the young agency continued. By the 1960s an internal BND report estimated that approximately 200 staff members were from former Nazi security agencies, some of them implicated as war criminals, and up until the early 1970s around 25 to 30 percent of BND’s personnel had a Nazi past.19

Bibliography

Declassified intelligence files

A list of key US intelligence documents about operations Rusty, Keystone, and the early Gehlen Org that have been declassified has been assembled by the Jewish Virtual Library20:

These documents are just a selection of the documents that have been made available under the Nazi War Crimes Disclosure Act by the US National Archives.

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