There is agreement among Australian historians that the Petrov Affair and its ramifications can be seen as the most important event in the history of the Australian Federal Labor Party, if not in the history of the labour movement, in the twentieth century. Dr Evatt attended the ensuing Royal Commission on Espionage to defend two of his personal staff named in Petrov's papers, but it led to a reaction against him in the federal parliamentary caucus which contributed to the 1955 split in the ALP followed by the start of a decline in his political career. Much of the material behind the Petrov Affair has remained secret and Evatt's involvement thereby remained clouded. But the release of the Venona papers in 1996 by the National Security Agency of the US government has provided historians with a greatly enlarged picture of the extensive intelligence operation conducted by the Americans between 1943 and 1949 in Australia and elsewhere. H.V. Evatt oversaw the intelligence agencies in Australia in his role as Attorney General from 1941 to 1949 during which time he gained insights to that secret American decoding operation known as Venona. The release of those American papers now helps us to see more clearly how that operation is linked to the evolution of the Petrov Affair.

     The Petrov Affair burst on to the Australian political landscape on 3 April 1954 when Vladimir Petrov defected to ASIO carrying Soviet intelligence documents in return for a $10,000 in cash and Australian nationality. He defected on the eve of general elections for the House of Representatives to be held on 29 May 1954 which pundits at that time said could be won by an Evatt-led Labor government. The Menzies government responded immediately by establishing a Royal Commission on Espionage (RCE) to investigate those people named in the Petrov's documents. Menzies selected judges from three state Supreme Courts, specially recruited for their anti-Labor predilections,^[1] and the first hearing of the RCE was conducted on 17 May in some haste in the theatrical surroundings of the Canberra's Albert Hall. It is now apparent that planning for the RCE had begun some months previously after the government had settled on what documents Petrov promised to produce and the cash reward to be paid. The model adopted by the government for handling this affair was taken from the successful Canadian Royal Commission that was established in 1945. Several Canadians had been identified in papers produced by a Soviet defector in Ottawa, Igor Gouzenko, who like Petrov had also been an embassy coding clerk. Those named were arrested and put before the Commission where confessions were tricked out of them on false promises after which they were prosecuted and jailed under the Official Secrets Act of 1939.^[2] Against the background of a possible Soviet spy ring being exposed, the Menzies-led government was returned with 69 seats to Labor's 52. Labor was consoled by winning 50 per cent of the national votes to 47 per cent for the government.

The Venona Operation: A Brief Introduction

Between 1943 and 1948 the American military decoding organisation was able to break into the Soviet diplomatic and military communications system during which they collected traffic between the Soviet's Canberra embassy and Moscow. This intercepted material was decoded in 1947 revealing that British documents sent to the Australian Foreign Office (then the External Affairs Department) had been passed to the Soviet embassy and transmitted to Moscow. The Americans informed the British, and MI5 informed the Australian ministry including Evatt then the Foreign Minister. Lengthy negotiations, to be analysed in greater detail below, were conducted between London, Washington and Canberra resulting in the new institution of ASIO being established in Dr Evatt's Attorney-Generals' Department. Its first operation was to track down those eleven people named in Venona as having leaked documents from Foreign Affairs including a typist in Evatt's electoral office who had no access to his diplomatic or legal correspondence. Evatt was kept informed of the investigation even while travelling overseas. By December 1949 when the Labor government had lost office, Evatt had a clear picture of the Venona operations and those named in it. The new Menzies-led government was intent on pursuing and prosecuting these people, but lacked access to the American's highly secret documentation for the evidence. However, the names of those eleven people identified as possible leakers plus others appeared in the Petrov papers thereby providing the opportunity to the government to have them summoned to give an account of themselves before the RCE.

     The RCE sat infrequently during May and June 1954, but in August it announced that it would summon two of Evatt's personal staff, Allan Dalziel and Albert Grundeman, whose names appeared in one of the documents produced by Petrov, identified as Document J. The two named did not appear in Venona, but Evatt perceived that the RCE would use the names of the staffers appearing in Document J as the means for discrediting Evatt himself. This explains why Evatt bearing the full status of the Leader of the Labor Party and parliamentary opposition leader, appeared before the RCE on 16 August on the excuse of defending his two staff. Evatt's long experience in heading intelligence agencies and his knowledge of Venona, together with information passed to him from the officers he had known from his recent intelligence days, all informed Evatt's actions. Unaware that Evatt was operating from a comprehensive knowledge of the Venona operation, Evatt's actions were described by commentators as intemperate, reckless and imprudent. But those involved in the conduct of the RCE were aware, as was Evatt himself, that his oath of office prevented him from revealing the details of this highly secret American operation and that he would seriously damage the American/Australian intelligence relationship if he divulged any detail of it. The primary aim of Evatt was to present the conundrum to the RCE and to ASIO that he knew that they knew that he knew of the intelligence ramifications of the Affair. The RCE officials outmanoeuvred Evatt from occupying the public stage for too long by allowing him to be engaged in pursuing the trivial detail of Document J about whether it was written by Rupert Lockwood or possibly by ASIO agents. And in this matter the Commissioners kept interrupting him to ensure that he did not stray from focussing on the detail of his two staff therein named. But events took on a more serious tone when Evatt decided to summon two important players in the Affair for examination, Ron Richards, the senior ASIO agent, and Dr Michael Bialoguski, a medical doctor and part-time ASIO agent who together arranged Petrov's defection. As the means for countering this move and with Evatt accusing the Petrovs in the weekend press of being no more than paid informers, the Commissioners refused to have him appear before them and he was dismissed on 7 September 1954. Prime Minister Menzies had closely followed the RCE proceedings and witnessing Evatt probing into the role of ASIO officials such as Richards', he hired his legal friend and leading Sydney lawyer, Garfield Barwick, to attend the hearings to defend ASIO and its staff before the Commission.^[3]

     The RCE produced its final report on 14 September 1955 which was debated in parliament on 19 October 1955. Evatt caused embarrassment to himself when mentioning that he had communicated with his friend V.M. Molotov, the Soviet Foreign Minister, on the Affair.^[4] Molotov left the reply to the Foreign Ministry's Press Department so that Evatt's intention of drawing the Soviets to give their account, since the Americans would reveal their side of events, was nullified.^[5] He was attacked in his own party for appearing before the RCE particularly by right-wing Catholic members of the federal caucus who perceived the event as another pro-communist folly of their leader. They then moved to unseat him although they lost the vote by fifty-four to twenty-eight. The split in the party evolved into a firm division that was confirmed at the special Hobart Conference in February 1955. Among the other events at this important meeting was the announcement by Arthur Calwell, Deputy leader, that the Petrov Affair was to blame for the party's troubles.^[6] Later in that year these disgruntled Catholic members split from the Labor Party to form their own Democratic Labor Party that took sufficient votes away from Labor as to exclude it from office for another eighteen years.

     In retrospect, Document J was not the best document to use in his argument that it had been fabricated by the government in order to frame innocent people under the excuse that it had been written by an active communist. The Moscow Letters which were a collection of seventy-one letters allegedly received by Petrov ordering him to perform a series of spying instructions of an extreme and unusual nature would have been better fodder for Evatt to use in challenging the authenticity of these alleged espionage documents. However ASIO had wisely held these back from examination by the RCE for some months and Evatt had little option other than challenging the falsity of Document J.

Dr Evatt 's Involvement in the Venona Affair

The brief account given above of Evatt's involvement in the Venona matters requires a fuller explanation for the important insights it provides for an understanding of Australia's role in the post-war intelligence gathering that involved it in friction with the United States and the United Kingdom. The US army deciphering experts developed an expertise in decoding the communications of the Japanese military which was known as a book code system. A similar system was used by the Russians, that is, a code book containing frequently used expressions which had a five figure code allotted to each phrase. But before transmitting those figures another set of figures drawn from one-time pad was added to them so that if the code book was captured the message would remain unbreakable. The US experts found that many one-time pads had been duplicated in a printing error in Moscow and many of the phrases could be recovered by stripping off the now known random number. Details of the revelations about the Australians passing information obtained from British documents to the Soviet embassy in Canberra were thereby obtained by the American army officials.

     The National Security Agency inherited the papers from the US army and released many of them in 1996.^[7] The Venona historian reports that 4,050 messages to and from Canberra were collected and sent to the USA for analysis^[8] and these related to trade matters, KGB administration^[9] and miliary intelligence topics. There were 218 messages relating to Australia released by the NSA in 1996.^[10] The US experts found a cable indicating that there had been a leakage of material from Australia's Foreign Office to the Soviet embassy in 1947 relating to a British document of no great official status that was sent for Australian comment. It is not unlikely that the Americans were able to rely on the Australian army's intelligence and signals section to collect the Soviet cables from the post office and to assist interpret the Australian traffic. This could explain why the US army, when seeking to warn the Australian government of the leakage, did not directly approach Prime Minister Chifley because of the Australian army's secret involvement in the matter. The US army broached the matter with the British government instead. This is why Prime Minister Chifley first learned of the deciphering when the Director-General of MI5, Sir Percy Sillitoe, flew to Canberra on 7 February 1948 to report to him with limited information about the deciphering. He misleadingly told Chifley that the information had been obtained from a spy in the Soviet camp; perhaps that is what the Americans had told him. A file number and the names of eleven Australians were mentioned and an immediate investigation was conducted in Canberra, but no leakages could be established and, as Chifley reported to Prime Minister Attlee with whom he communicated on this matter, further inquiries would have to await more information being released by Sillitoe.^[11] Some time later the Labor government arrived at the estimation that the Venona operation represented a long and secret operation that had been conducted by their wartime ally behind its back. This insight was to be confirmed with the public release of some of those Australian intercepts in 1996.

     Evatt was immediately involved in Sillitoe's secret news as Foreign Minister (he was also Attorney General) because three of the people named, Ian Milner, Jim Hill and Ric Throssell, worked in the Foreign Ministry.^[12] The fourth was a woman working in his electoral office, but not involved in handling official material. The Canberra inquiry indicated that the relevant files could be accounted for and that the people named were still in their jobs in the Foreign Ministry except Milner who had left to work for the United Nations in New York and the woman who had resigned from her position to get married. The information was a small fragment of information in an early Cold War setting although it was to be blown up by the Americans into a series of incidents, as will be shown, that accused Labor of risking the national security of Australia and put the spotlight on Evatt and his independent Australian foreign policy. Jim Hill immediately came under suspicion because his brother, Ted Hill, was an active member of the Communist Party of Australia. Chifley and Evatt and Dr Burton decided to send Jim Hill to London where he could be more closely examined through observation and interrogation by the expert in such matters, Jim Skardon of MI5. Between January and July 1950, Skardon interrogated him, but could not elicit any damaging information and Hill was returned to Australia.

     The extended problem for the Labor government was that other agencies in the US took advantage of the Australian Venona revelations to pursue their own agendas within the US administration. At that time the British were seeking to obtain range-measuring equipment from the Americans for use on the proposed Woomera rocket range in South Australia. The request was discussed by a defence committee in the Pentagon on 17 February 1954, but the US navy representative seemed to have learned of the Venona affair through a contact with Rear Admiral R.H. Hillenkoetter, the Director of Cental Intelligence Agency (CIA) and on passing that information to the committee the British request was refused.^[13] The Pentagon officials went further in May 1948 after learning of the Venona episode and declared a ban on the transmission of all classified information to Australia. The British were alarmed at this development because it raised the possibility that this anti-allied mood in America (then confined to Australia), driven particularly by the US navy, might affect the British intentions of seeking an enlarged sharing of technology exchanges with the Americans. The Menzies-led opposition learned of the Pentagon ban on Australia through their contacts in London, and although it was considered to be of the highest secrecy level, they used information of the embargo against the Labor government at the 1949 general elections.

     Although the Venona operation was designed as an anti-Soviet intelligence operation it gradually took on the characteristics of an anti-Australian and anti-Evatt operation. This shift seemed to be in reaction to events in Australia, particularly the independent foreign policy that was being conducted by Evatt and his youthful Department Secretary, Dr John Burton. The State Department was concerned at this Australian nationalist policy and its ambassador in Australia, Myron Cowen, who owed his position to being a leading fundraiser in New York State for President Truman, conducted a firm campaign against Evatt, whom he deeply disliked, and the Australian Foreign Ministry.^[14] Cowen's strong stance was reflected in the reports that his defence attachés sent back to Washington that described the Chifley government as being infested by left radicals and that the local Communist Party exerted strong influence over the government and Australian public life.^[15] The newly established CIA prepared a booklet labelled, Communist Influence in Australia, using these misleading attaché accounts sent to the Pentagon.^[16] After recognising that news about the Australian Venona leaks were circulating in the more senior spheres in Washington, Chifley and Evatt made attempts to understand its ramifications within the administration. The Secretary of Defense, J.V Forrestal, was the most appropriate minister to communicate with on this matter. On 3 September 1948, J.A. Armstrong, Minister for Supply and Development, was visiting Washington and he used friends of Australia with connections to the administration to arrange a meeting with Forrestal only to be told that he was reported to have had no first hand information on the topic. On 12 November 1948, Evatt was in France attending a meeting at which Forrestal was present. Knowing that he would obtain no positive answer, but wishing to have him acknowledge that the ban had American origins, he told Forrestal that he was embarrassed by the fact that communications of some apparent security breaches 'had not been directly made to the Australian government, but had been communicated by the British'. He added the news about the British assistance to develop a new security body and added optimistically that the matter was now 'a dead issue'.^[17] Evatt's comments indicate that he knew about the origins of the Venona material and could have identified those aspects of it, particularly that relating to named individuals, when they appeared in the Petrov papers.

     The most significant ramification of the Venona operation both for the Labor government and for Evatt was the decision of the inner ministry to establish the equivalent of an MI5 counter espionage body. Following the decision of the Evatt-appointed Pinner Committee after the end of World War II about the need for maintaining an intelligence body, Evatt retained the pre-war Investigation Branch-style of institution that functioned like a civilian police force with no predilection to pursuing left-wing institutions or people. The recommendation for a new counter espionage institution emerged from discussions between Prime Ministers Attlee and Chifley as the means for demonstrating to the Americans that an effective institution had been established in Australia and as a measure for protecting what technology the Americans might be prepared to bestow on the British and which might be passed to the Australians. Attlee arranged to have an MI5 expert sent to Australia to oversee the establishment of such a body and also to conduct investigations into the fragments of the Venona material that Sillitoe had released to Chifley. As the means for preventing ASIO from becoming an anti-left institution, Evatt had a Supreme Court judge, Mr Justice G.S. Reed, appointed as its first Director-General and for it to be retained in the Attorney General's Department. Reed was an old friend of Labor and had conducted inquiries for the Labor government that met suitable conclusions. Evatt placed his full confidence in Reed by remarking later that 'to all intents and purposes the Director-General of Security is free from ministerial direction' in order to maintain maximum internal security.^[18] Evatt firmly supported the establishment of ASIO and he gave a commitment to Dean Acheson, US Secretary of State, and to President Truman in April 1949 that the move would have his fullest support.^[19] Chifley announced the establishment of ASIO in March 1949.

     Chifley and Evatt wanted to placate the concern in America over the impact of the Venona information about Australia and to win back American favour before the general elections set for December 1949. They were unaware that US officialdom had no intention of meeting the Australian government's expectations in this matter. However, in discussion between Attlee and Truman it was agreed that the Secretary of the Defence Department, Sir Fred Shedden, should visit Washington on his way to London in April 1949 to discuss with the administration the measures introduced by the government to repair the Venona-identified damage. Shedden set sail with material on how the new ASIO was functioning, but Cowen flew back to Washington ahead of Shedden to counter his presentation. Dr Evatt was there for meetings of the UN and although he saw Cowen's visit as a bad omen, he was able to provide Shedden with insights to the Truman administration. In particular he advised Shedden that Cowen exercised stronger influence in the White House than did the new Secretary of Defense, Louis Johnson. This was confirmed in Shedden's discussions with the head of the British Military Mission to Washington, General Sir William Morgan. The case put by the Pentagon and Cowen for the continuation of the embargo prevailed.^[20] They declared that ASIO was too new to be an acceptable counter espionage body, but their refusal was more likely to have been conditioned by the knowledge from their informed Australian contacts that the Labor government was likely to be replaced in December by Liberal-Party-led government under R.G. Menzies.

     Meanwhile, Justice Reed established the new ASIO body and had the limited Venona material investigated under the code name of the 'Case'. ASIO was to have a staff of 150 and Reed commenced appointing them from June 1949. He promoted R.F.B Wake, who had been Deputy Director of the Investigation Service in Brisbane and who remained in contact with Dr Evatt, to become Director in Sydney,^[21] B. Tuck was to become Director in Canberra and H.C. Wright in Melbourne. Wake assisted the two MI5 officers, Roger Hollis and Courtney Young to probe the Venona issue and by July, Reed reported to Evatt that the spy-master had been tentatively identified.^[22] By December 1949 when Labor moved to the opposition benches, Evatt had become so familiar with the many aspects of the Venona affair, even though it was considered to be a matter of high secrecy, that he could recognise aspects of it when it emerged in an altered form as part of the Petrov papers five years later.

Menzies to power and the 'Nest of Traitors'

One of the principle aims of the Menzies government was to ban the Communist Party, expose the Venona eleven and prosecute them. Over 63 Australians were named in the papers including the eleven from Venona. To this end Menzies abandoned Evatt's concept of a legally accountable role for ASIO by having Justice Reed replaced by the military intelligence figure, Colonel Spry, then Director of Military Intelligence. The Venona eleven were placed under special surveillance. Evatt's secretary, Allan Dalziel, was followed by ASIO agents during his working day in Evatt's Sydney office and his telephone was tapped.^[23] Other people close to Evatt such as Wake were similarly harassed and Spry had Wake's contract signed by Reed terminated.^[24] The government's intentions became clearer on 27 May 1952 when the Liberal Party's Foreign Minister, R.G. Casey, announced in parliament that a 'nest of traitors' had existed in the Foreign office when Dr Evatt and Dr Burton had been in charge, but that nest was soon to be uncovered.^[25] Dr Evatt seemed to have maintained contact with some of the intelligence officers, either in the Investigation Branch or ASIO, and knew of the Casey-inspired surveillance. Evatt recalled in his parliamentary address that, 'It seems certain that evidence was being collected and collated having in mind the probability, or certainty, of his [Petrov's] defection. I repeat that vital statement, that this indicates that twelve months before the actual defection evidence was being prepared to deal with the situation'.^[26] It was evident to the Menzies government that the US administration would refuse to allow even the very limited material from its highly secret Venona operation to be used to prosecute people in far distant Australia and the government would have to find a way of circumventing that restriction. Luckily the means for that goal soon came to hand. ASIO had been discussing with the Soviet embassy official, Vladimir Petrov, the possibility of his defecting and bringing papers from the KGB safe that would incriminate Australians in the spying plot. Petrov did not defect until April 1954, but the dossiers on the 'traitors' and others had been prepared in anticipation during the course of the early 1950s.

Enter Vladimir Petrov

Dr Evatt became leader of the federal ALP in June 1951 on the death of J.B. Chifley and while it marked the end of Evatt's direct involvement with intelligence matters, after he shed the shadow attorney generalship, he kept in touch with the many intelligence operatives whom he knew from his years overseeing intelligence matters. This would have included his legal friend, Colonel W.B. Simpson, whom Evatt had selected to take command of the wartime Security Service assisted by another legal friend, S.C. Taylor, in 1942. Evatt insisted that this Service be in his Department with the remark that 'it is important to impress the civil rather than the military stamp upon the proposed organization, owing to the necessity for public confidence in the reasonable protection of civil rights and liberty'.^[27] His more recent friends would have included Major E.E. Longfield Lloyd whom he appointed as head of the post war Investigation Branch with the new name of Commonwealth Investigation Service, as mentioned above, and his other legal friend, Justice Reed, who headed ASIO. It is unlikely that he knew about the ASIO operation involving the recruitment of Petrov because Colonel Spry's appointments were drawn from the military. ASIO had monitored Petrov since he had disembarked in Sydney Harbour in February 1951 to work in the Soviet embassy, and it had its part-time agent, Dr Bialoguski befriend him and lead him to defect. Petrov was actually a coding clerk, but he had himself accepted as a KGB Colonel in charge of a local spy ring although the improbability of this was emphasised by his lack of English and his not having been trained in a Soviet spy school. He frequently travelled from Canberra to Sydney to stay with Bialoguski with whom he drank, gambled and engaged prostitutes. Later he commenced sly-grog selling by buying Scotch whisky from the wholesalers on the embassy duty-free account and selling it to bars and hotels in Kings Cross. The clandestine business prospered and the embassy car and driver had to be brought in to handle the increasing volume. The question arises of the real status of Petrov. The Soviet embassy was accustomed to dispatch back to Moscow officers who transgressed, but Petrov remained untouched by such discipline. Was he a Soviet double agent feeding Soviet disinformation to ASIO and transmitting ASIO disinformation to the Soviets all via Bialoguski? The question must remain unanswered until ASIO releases the numerous reports of Bialoguski's handlers. ASIO saw him as the means to obtain access to Soviet coding techniques and to information about the Australians mentioned in Venona. ASIO offered Petrov a chicken farm in the Blue Mountains for defecting, but he eventually settled for the $10,000, Australian nationality and the long-term protection of the 'D notice' in the local media.

Dr Evatt and the Royal Commission

ASIO's conduct of the RCE was kept highly secret and managed from a special section under Ron Richards, ASIO's Deputy Director, and Victor Windeyer, counsel assisting the Commission. ASIO maintained control of the RCE's programme through its holding of the main witnesses, the Petrovs, in its safe house where they could be rehearsed in the evidence to be presented at the following hearings. In addition it held the numerous files already mentioned as having been compiled over the years about the Venona-named people and others with Russian or communist connections. The Petrov documents consisted of three groups. The first was named 'document J' and contained potted histories of Australian events that reflected badly on leading Australian political figures; the second group was named 'the Moscow letters' that is seventy-one letters sent from Moscow in 1952 which were alleged instructions to Petrov about how to control his spy ring and those Australians whom he should enrol in it. The third was 'document G' which had allegedly been stored for some time in the KGB safe and turned out to have the eleven Venona names plus others who might provide information, some of whom had code names. Evatt argued in his 1955 speech that document G was a fabrication based on the Venona documents. He remarked that how 'late in March, 1954, just on the eve of Petrov's defection, an envelope which had been sealed for three years in the embassy, according to Petrov, was opened by him'. The contents, Evatt stated when emphasising how document G had suspicious origins, consisted of a list of names that 'were in accord with some of the circumstances suggested merely by way of suspicion in 1948, [meaning the limited Venona information] and with the additional information obtained by security during 1953, twelve months before the defection. That is quite a remarkable series of coincidences'.^[28]

Conclusion

Dr Evatt's leaping into the midst of the Royal Commission on the excuse of defending the names of two of his staff has been attacked by many writers as being the height of self-indulgence and utter foolishness. Some Catholic members of the federal caucus, already disenchanted with Evatt's foreign polices and his support for civil liberties, made it their excuse for splitting the ALP and switching preferences to keep Labor out of office for decades. However, with the release of the Venona documents by the US government in 1996, we can see that Evatt had insights to their contents from 1948. And US archival evidence demonstrates how Evatt had first-hand knowledge of how the Venona-detected leak from the Australian Foreign Office was exploited by the Pentagon, the State Department and the CIA as a measure for denying technical information to the Australian and British governments and their post-war re-armament programmes.

     When Evatt saw that the Venona-detected leak was to be revived in conjunction with the Petrov Affair by the Menzies government in order to discredit the Labor Party, Evatt was justified in joining the fray. He did it in the knowledge that the government and the Commissioners were well aware of his lengthy background in intelligence matters and that he had been kept informed by tip-offs from friends still working in intelligence. All those involved in the RCE were aware that Evatt would not breach his oath of office nor would he damage US/Australian intelligence relations by exposing his knowledge about Venona. The Commissioners were guarded in permitting him to examine Document J knowing that he could not be denied having his day in court. He made little progress in exposing the origins of the document J, but the Commissioners made no progress in identifying who were the spies in the Foreign Office. Their report was released in September 1955, but it could recommend no prosecutions because the incriminating evidence was contained in the Venona material and the US intelligence officials would refuse to allow it to be used for such a purpose. The last word came from the Melbourne press who declared in a damning comment that the entire RCE was no more than a colossal waste of taxpayers' money.