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Francis Cardinal Spellman of New York served as a crucial go-between in CIA-Vatican negotiations. “The Vatican [has] been promised that American funds would be made available to assist in the presentation of the anti-Communist appeal to the Italian public,” Spellman wrote following a meeting with U.S. Secretary of State Marshall. The U.S. government, the cardinal said, had secretly “released large sums in ‘black currency' in Italy to the Catholic Church.”
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This “black currency” did not come from the American taxpayers. Rather, a substantial part of the funding for clandestine activities in Italy came from captured Nazi German assets, including money and gold that the Nazis had looted from the Jews.

The trail of this tainted money dates back to 1941, when the War Powers Act authorized the U.S. Treasury's Exchange Stabilization Fund to serve as a holding pool for captured Nazi valuables—currency, gold, precious metals, and even stocks and bonds—seized as the Germans or other Axis governments attempted to smuggle them out of Europe. The captured wealth, which eventually totaled tens of millions of dollars, included substantial amounts of blood money that the Nazis had pillaged from their victims. Indeed, it was precisely this type of criminal booty that overeager Nazis had most frequently attempted to export from Europe.

The Exchange Stabilization Fund was authorized to safeguard the portion of the Nazi hoard that had been uncovered and confiscated by the United States in the Safehaven program, which sought to interdict the German smuggling efforts. The official purpose of the fund was to serve as a hedge against inflation and as a bankers' tool to dampen the effects of currency speculation in the fragile economies of postwar Europe and Latin America. In
reality, this pool of money became a secret source of financing for U.S. clandestine operations in the early days of the CIA.
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The first known payments from the Exchange Stabilization accounts for covert work were made during the hotly contested Italian election. The CIA withdrew about $10 million from the fund in late 1947, laundered it through a myriad of bank accounts, then used that money to finance sensitive Italian operations. This was the “black currency” that Cardinal Spellman asserted was given to the Vatican for anti-Communist agitation.

Much of the CIA's $10 million Italian war chest was delivered through clandestine campaign contributions to Christian Democratic candidates. The agency, it is true, refused to fund openly Fascist candidates. A “conscious policy was made both in Washington and Rome,” former CIA Director William Colby writes, “that no help of any kind was to go to the Neo-Fascists or Monarchists.” Instead, the center parties were to be strengthened to form what Colby terms a “stable, viable and truly democratic governing majority.” The reasons for this strategy were both ideological and pragmatic: “Any strengthening of the Neo-Fascists and Monarchists, we recognized, would inevitably weaken the Liberals and Christian Democrats [the CIA's favored parties in this case], for that was the only place from which added strength could come to them, not from the Communists.”
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Colby's comment is correct. What it fails to reveal, however, is the fact that many of the remnants of the Fascists' wartime ruling apparatus, as well as most of the police, had joined Christian Democratic ranks after 1945. The CIA's “black currency” in Italy may not have gone to the discredited diehard Fascist groups, but it did go to clerics and other leaders who were themselves closely tied to Fascist rule.

The curious events surrounding Monsignor Don Giuseppe Bicchierai of Milan are disturbing. Bicchierai had served during the closing months of the war as an intermediary in surrender negotiations between Allen Dulles of the OSS, on the one hand, and Walter Rauff of the SS and SD. Rauff, in turn, was representing SS General Karl Wolff and Field Marshal Albert Kesselring, who were the senior German police and military officials in Italy. The OSS called these negotiations “Operation Sunrise.” They played a large role in establishing the reputation of Allen Dulles as a consummate spy master, though a strong argument may be made for the contention that they failed to shorten the war in Italy by a single day. Be that
as it may, it is clear that Sunrise established a close working relationship between Dulles and Bicchierai that was to flower in the years ahead.

But first there is the matter of Walter Rauff. Rauff was a major war criminal. He had personally developed and administered the notorious gas truck execution program which took the lives of approximately 250,000 people, most of them Jewish women and children who died in unspeakable filth and agony. Rauff escaped from Europe in 1948, traveling first to Syria and later to South America.

An extensive study of Rauff's life by the Simon Wiesenthal Center suggests that Monsignor Bicchierai may have helped Rauff and other Nazi fugitives escape from war crimes charges by aiding their flight from Europe. According to the Wiesenthal report, Rauff was interned at the Rimini POW camp for about eighteen months after the war but succeeded in slipping away under mysterious circumstances in December 1946. Wiesenthal believes that it was Bicchierai who sheltered Rauff after this escape and arranged for him to stay secretly “in the convents of the Holy See,” as Rauff himself testified years later. Rauff hid in Rome for more than a year, then used false passports to travel to Syria and South America. Wiesenthal has repeatedly asked Pope John Paul II to open an investigation into Bicchierai's role in this affair. So far these requests have been ignored.
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Walter Rauff was still hiding in the “convents of the Holy See,” as he put it, when the CIA provided his sponsor Monsignor Bicchierai with enough money to buy Jeeps, bedding, and guns for an underground squadron of some 300 anti-Communist Italian youths for use during the 1948 elections.
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The job of this band was beatings of left-wing candidates and activists, breaking up political meetings, and intimidating voters. Bicchierai's troops became the forerunners of a number of other similar paramilitary gangs funded by the CIA in Germany, Greece, Turkey, and several other countries over the next decade.

The CIA's strategy in Italy, including Monsignor Bicchierai's strong-arm squad, was a great success. The Italian Communists lost by a comfortable margin, and the American intelligence services emerged with the Catholic Church as a powerful new ally. Perhaps most important of all, the strategy of using covert operations to achieve political goals in peacetime was firmly implanted in the minds of Washington's foreign policy elite as a powerful weapon in an increasingly dangerous cold war.

The utility of the new covert operations apparatus seemed clear at the time: It permitted the White House to circumvent the cumbersome bureaucracy of Congress and the Department of State in the field of foreign affairs; it extended the reach of the United States with what appeared to be relatively little risk; and it permitted the president secretly to carry out actions that would discredit the United States if they were undertaken openly. Covert action was also relatively cheap, at least compared with the costs involved in maintaining a permanent military presence throughout the world.

George Kennan, in particular, “was deeply impressed by the results achieved in Italy,” according to Sig Mickelson, the longtime chief of Radio Free Europe. “And [Kennan] foresaw similar crises arising in the future.” Kennan was “directly concerned with the refugee problem and worried about the weakness of the nation's intelligence apparatus,” Mickelson writes. “[He] advocated the creation of a covert action capability designed to complement covert
psychological operations somewhere in the governmental structure.… His intention was to create a mechanism for direct intervention in the electoral processes of foreign governments,” the former Radio Free Europe president continues. “It would be under the control of the Department of State, specifically [Kennan's own] policy planning staff, but it would not be formally associated with the department. State was still skittish about dealing openly with foreign governments on the one hand [while] carrying out covert destabilizing efforts on the other.”
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Greece in 1947 and Italy in 1948 also taught the CIA that it could employ former Nazi collaborators on a large scale in clandestine operations and get away with it. U.S. national security planners appear to have concluded that extreme-right-wing groups that had once collaborated with the Nazis should be included in U.S.-sponsored anti-Communist coalitions, for the participation of such groups became a regular feature of U.S. covert operations in Europe in the wake of the Greek and Italian events.

A case may be made for the idea that doing so was simply realpolitik. Former collaborators were, after all, a substantial organized force, so why not make use of them? At the time the benefits of using former Nazi collaborators appeared to outweigh any drawbacks. The American media—and the American people, for the most part—warmly welcomed the victories of European center parties over their Communist rivals. There were few public questions concerning exactly how these successes had been brought about. The long-range implications for this policy were, as shall be seen, more problematic.

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Greek central intelligence agency chief Papadopoulos and several of his top lieutenants have repeatedly been accused of being Nazi collaborators. After Papadopoulos had seized total power in Greece in a bloody coup in 1967, U.S. Senator Lee Metcalf denounced him from the floor of the U.S. Senate, calling his junta “a military regime of collaborators and Nazi sympathizers … [who are] receiving American aid.”

Interestingly enough, one of Papadopoulos's first acts on taking power in Greece was to decree that time spent serving in the Greek security battalions of World War II would count toward government pensions.

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There is no evidence that Crosby, Sinatra, and Cooper were aware of the seamier aspects of the U.S. government's campaign in Italy or that they knew that U.S. intelligence was underwriting the publicity campaign to which they lent their names.

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What Allen Dulles knew, if anything, of the circumstances of Rauff‖s escape from Europe is open to question. He fails to comment on the matter at all in his own history of the 1945 negotiations,
The Secret Surrender
. State Department files, however, contain an intriguing top secret memorandum dated September 17, 1947, that casts some new light on the department's attitude concerning war criminals who participated in the Sunrise negotiations.

Sometime shortly before that date, the U.S. political adviser's office in Germany cabled Washington requesting information on how to handle war criminals who claimed that they had been involved with Sunrise. The text of this message is missing from State's archives, but the answer to the query has been located. It reads: “Officials concerned with Operation Sunrise report no, repeat no, promises furnished,” State's longtime head of security Jack Neal wired back to Germany. “However, these officials are of the opinion … that allies owe some moral obligation in return for aid performed and risks taken, therefore, definite consideration should be given to those favorable aspects when weighing any war crimes with which they are charged.”

Each of the SS officers involved in Operation Sunrise managed to escape serious punishment after the war despite the fact that each was a major war criminal. A U.S. military tribunal tried Walter Schellenberg, who had helped trap and exterminate the Jews of France. He was convicted but freed shortly thereafter under a clemency from the U.S. high commissioner for Germany, John McCloy. Schellenberg became an adviser to the British intelligence service. The gas truck commander Rauff, as noted in the text, escaped under mysterious circumstances to South America. SS Obersturmbannführer Eugen Dollman, who had been instrumental in the killing programs directed at Italian Jews, was in American hands in 1947 yet managed to escape to Switzerland in the early 1950s.

Himmler's personal adjutant SS Gruppenführer Karl Wolff was sentenced to “time served” in a denazification proceeding in 1949, then released altogether without any objection from the U.S. occupation authorities. Fifteen years later a West German court tried Wolff a second time. Then, he was convicted of administering the murder of 300,000 persons, most of them Jews, and of overseeing SS participation in slave labor programs at I. G. Farben and other major German companies. Wolff served seven years of a life sentence, then was released again.

CHAPTER EIGHT

Bloodstone

The Greek and Italian campaigns revealed something else as well: Covert action was largely out of the control of the established foreign policy apparatus in Washington. Although the Italian operation had been endorsed by all the appropriate government committees, not one of them had really known what was under way. The ease with which Republican activists Allen and John Foster Dulles had commandeered control of America's largest postwar secret campaign to date was bound to raise eyebrows at Truman's National Security Council. The closely contested 1948 TrumanDewey U.S. presidential election was only months away, and John Foster Dulles was, after all, among the Republican challengers' most influential foreign affairs strategists. The implications of conceding this much power to the political opposition—or, equally dangerous, to the military—were not lost on the White House.

Serious blunders in secret U.S. political warfare operations involving Eastern European nationals had already taken place. Most notable of these was a bungled U.S.-backed coup attempt in Romania in March 1947. Circumstantial evidence suggests that a still-active splinter of the old OSS was behind the operation, though the full story has yet to be told. It is clear, however, that the Romanian affair was undertaken without the knowledge of the secretary of state, who had directly forbidden such meddling because of sensitive ongoing negotiations over U.S. investments in the Ploesti oil
fields. The attempted coup took place with such amateurishness that the conspirators took “stenographic notes … of the [clandestine] proceedings … and placed [them] on file with other persons,” according to Robert Bishop, a longtime American intelligence agent in Romania. This, Bishop notes blandly, “was a foolhardy procedure.”
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The conspirators were soon rounded up by Romanian police, tried, and sent to jail for many years. U.S.-Romanian relations, already tense, further soured. The Ploesti oil field negotiations failed.