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So the announcement in November that he would retire at the end of the month came as a great surprise.

Ill-informed but knowing types probably allowed suspicion to cross their minds. In the spring, Melville had been put in sole charge of considerable Special Branch funds for secret out-of-pocket payments. Was it possible that some irregularity had come to light?
³
This retirement was so entirely unexpected. Patrick Quinn, hastily appointed Melville's successor, was not yet qualified by examination for the rank of Superintendent. Surely something was going on.

What had been going on, and was now over, was the Boer War. The British Government's struggle to retain control of the Transvaal and the Orange Free State had succeeded, but it had revealed an army intelligence service flawed in both war and peace. Like senior policemen years earlier, many military men were inappropriately fastidious when it came to spying. As late as 1895, Colonel G.A. Furse found it necessary to point out, in
Intelligence in War:

In war, spies are indispensable auxiliaries and we must discard all question of morality. We must overcome such feelings of repugnance for such an unchivalrous measure because it is imposed on us by sheer necessity.
⁴

This had been understood at the highest level during the Boer War, and a large amount of money and up to 132 specialist officers put at the disposal of military intelligence,
pro tem.
But money and men were not enough: the military culture was all wrong. Very few of these new appointees knew Afrikaans or any African language and they tended to be inappropriately complacent about their own cleverness.
⁵
And the old amateurism persisted in men like the young Robert Baden-Powell who ‘treated spying rather like cricket, as a game for the gentleman amateur'.
⁶

Another major problem was lack of co-ordination. Threats to British interests all over the world were perceived and dealt with by a variety of agencies who might employ anyone, from envoys in the palaces of Constantinople to officers braving bullets on the
veldt
and plain-clothes men lurking at British ports.

Despite the belief that vast imperial interests were at stake there was no attempt to form a unitary intelligence service nor, more importantly, to establish a permanent relationship between intelligence and operations, or intelligence and policy. The Foreign Office, the army on the ground, the War Office in London, the Indian Government, the India Office and various Empire political services all operated more or less independently…
⁷

Military intelligence in London around the turn of the century was focussed to an old-fashioned degree on a perceived threat from the Franco-Russian alliance. Sir John Ardagh of the Military Intelligence Department believed the French were grooming Irish elements to support an uprising which would take place should the French confront the British in war. In fact a complex web of treaties and alliances had been forming, breaking apart and re-forming for years, and only the British remained in ‘splendid isolation'. Every country ostensibly at peace was busy developing industrial strength and tactical resources in case of war. The Russians (who had concluded a treaty with the Austrians that preserved them from trouble in the Balkans) looked more covetously than ever on Persia and India and were stringing the Trans-Siberian railway right across Asia. The Germans were building a railway from Mesopotamia to Turkey. The American, Japanese and German navies were getting bigger and better, the Germans had implemented the Schlieffen Plan which would preserve them from attack in the west if they decided to make a move on Russia, and most of these newly industrialised nations were jostling for power and territory. The others were catching up. Britain's position at the top of the heap was not half so impregnable as it had been fifty years before.

When great wads of War Office money were sunk into a scheme to set up a coal supply network as the means of gaining intelligence about the French navy, somebody on high decided to pull the plug and there ensued a reorganisation.
⁸

It was one of many reshuffles and renamings which took place in the twelve years between the end of the Boer War and the start of the Great War. The Committee for Imperial Defence, led by A.J. Balfour, sat from 1903 with the aim of co-ordinating policy and practice between the Admiralty, the War Office and the Foreign Office. At the War Office, the first changes were dictated by a committee led by Lord Esher.

A new Directorate of Military Operations was instituted, and two of its divisions, MO2 (operations abroad) and MO3 (counter-insurgency) were specifically entrusted with intelligence gathering. During the South African conflict Colonel James Trotter had run Section 13, which included a three-man team devoted entirely to ‘watching shipments of ammunition and messages from the continent [to the Boers] and for carrying out enquiries referred from South Africa'.
⁹
Trotter strongly believed in maintaining a peacetime intelligence system (which insofar as it existed had traditionally been paid for by the Foreign Office).
¹⁰
So now that MO2 and MO3 were in place, Trotter and his brother officers would do the analysis – but they needed at least one excellent field operative; somebody who could respond to the demands of counter-espionage in England while acting as case officer for agents abroad. He must have a solid background in this kind of work and be prepared to commit himself for a long time, for in Trotter's recent experience

Before the war money had been wasted on persons who made sham offers of information, and in other ways, owing to want of… a record of [their] previous history; if the section was made permanent such occurrences would be avoided in future.
¹¹

Should spies be discovered at home, they might have to be arrested and tried. As only the police could make arrests, the man concerned must also carry the authority and credibility to get swift action from the very top at Scotland Yard. ‘I think Superintendent Melville would be a good man, and that I had better write to Henry about him', noted Sir Thomas Sanderson after a meeting with Trotter in September. Lord Lansdowne asked him first to consult Sir Edward Bradford, the former Commissioner, ‘whose opinion was favourable'.
¹²
Sanderson's letter to Sir Edward Henry was duly sent, and Henry (who had received a memo about a man for this new post from Trotter as early as 19 May) wrote back

I hope to be back on 12th October and will then arrange about Melville. He is shrewd and resourceful and altho' he has a tendency towards adventuring he can keep this in check when it suits his interests to do so.

For the purpose for which he is needed, to be an intermediary, no better person could be secured – probably no one nearly so good for the money. The Intelligence Department will make it clear to him that he must work to orders and must abstain from taking a line of his own.

We must arrange that he sever his connection with Scotland Yard as quickly as possible. His utility to the WO would be much lessened if it became known that he had taken service with them.
¹³

In the course of his holiday in October, Melville received a mysterious communication from Colonel Trotter, whom he visited at once upon his return to London; and Colonel Trotter offered him the job.

Melville was in no rush to leave the Metropolitan force, but he had nothing left to prove and already qualified for the full retirement pension. More importantly, in the course of his work he had outgrown the view that a few anarchists were the greatest present threat to British imperial power. He had spent time with people at court and in the higher echelons of Government and understood that matters of international business and politics were subject to forces far more subtle and opaque than, as a policeman, he was used to handling. Here was a new challenge that would allow him to investigate complex and far-reaching events.

His cautious response was that ‘if I got a suitable offer, I would consider it'.
¹⁴
Reading between the lines, he could hardly wait to get started. Terms were quickly settled: he would receive £400, which with the £280 police pension would add up to a good living. But nobody must know that his retirement was prompted by anything other than a desire to spend more time in his Clapham garden.

At this time bright officers were returning from active service in the Empire and sharpening the focus of War Office intelligence. Vernon Kell, a young man recently back from China after serving as ADC to a Chinese General during the Boxer Rebellion, was among those making his mark. He had been brought up speaking Polish and English. He spoke German, French, Russian and colloquial Chinese to interpreter standard and could read Italian.
¹⁵
He would concentrate on information from Germany about war preparations there.

Staff Captain Francis Davies had been a Commissioner of Police in South Africa during the Boer War and was now at MO3. Ex-Superintendent Melville would report directly to him. Among his first tasks would be the hiring of a reliable man to work in Europe. The
modus operandi
of this person, Henry Dale Long, is revealed in a letter from Melville to Captain Davies of 8 April 1904:

I beg to inform you that Long left for Hamburg on 30th ult. But he had first to proceed to Brussels re obtaining some introductions if possible.

I gave him full instructions how to act and of course many suggestions. Everything is to be done in a commercial way. To this end he will present attached card which explains itself. I received a telegram from him yesterday from Hamburg stating that his address is Hotel Glaesner, Neuer Jungfernstieg.

He will do all possible to get in with some
employés
in the firms of Busch & Co and Gottlieb Goerner, both mentioned in précis of reports.

This was accompanied by the business card of W. Morgan, General Agent, of Victoria Street London SW, inscribed ‘presented by H.D. Long'.

Melville's next preoccupation would be with events which were already unfolding in France, in which he foresaw a role for an old friend.

Mr and Mrs Reilly had spent an interesting few years abroad. In the summer of 1900 Sidney left Margaret behind in St Petersburg and travelled to the Caspian, where he pursued business opportunities between Baku and Petrovsk in Kazakhstan.
¹⁶
At this time the British Consul in Baku employed a useful agent who is likely to have been Reilly. Petrovsk, linked by railway to Baku, was also an important entrepôt along the trans-continental route now opening up between Moscow and Vladivostok. Reilly became aware of possibilities in the Far East.

In September 1900, the couple crossed the Mediterranean from Constantinople, sailed down the Suez Canal and on via Colombo, Penang, Singapore and Hong Kong to Shanghai. Shanghai, at the time an exotic forcing-house of rumour, commercial opportunity and international crime, must have been the sort of place where Sidney Reilly felt at home; but after a few months he and Margaret moved on. There was money to be made in Port Arthur (today Lüshun). The city commands the entrance to the Gulf of Zhili, from which Beijing lies only a hundred miles inland. Port Arthur can be approached across the Yellow Sea. Korea lies roughly east of the Yellow Sea, the Chinese mainland to the west.

The Chinese had leased Port Arthur to the Russians, but the Japanese, lying in wait beyond Korea, were determined to take it for themselves. Port Arthur, and the peninsula on which it stands, would give them access to Beijing and Manchuria. By 1901 the Foreign Office recognised that ‘unless Japan could find an ally against Russia, she might be driven to make a bargain with her instead'.
¹⁷
The British were negotiating with the Germans but there were strong reservations on both sides. Talks collapsed and immediately afterwards, in January 1902, the Anglo-Japanese treaty came into force. They agreed strict neutrality should either go to war with another country, and assistance if the other party went to war with more than one.
¹⁸

The Japanese needed intelligence about Russian defences and Sidney Reilly needed money. It seems that a deal was struck that satisfied both parties. Reilly also made a good living working for, and with, a wealthy and astute entrepreneur by the name of Moisei Ginsburg, who had been based in Japan for many years and was now represented in all the important ports of the Far East.

Sidney Reilly saw the Russo-Japanese War coming before most people, and in September 1903, Margaret was sent away, no doubt persuaded that this was for her own protection. Off she sailed towards America; and she did not reappear in Reilly's life until the winter of 1904.

Left alone in Port Arthur as the Japanese prepared plans to attack, Sidney Reilly devoted himself to an affair with the Russian wife of an Englishman, Horace Collins, who happened to be Russia's chief intelligence agent in the town. Intelligence was being supplied to all the major powers, particularly the Japanese, who had no difficulty in getting their own citizens into construction gangs working on the harbour defences. The Russians couldn't tell the difference and the Chinese weren't telling, and one result was that the standard of workmanship was not of the highest.

One person who knew about these Japanese masquerading as Chinese was a German spy calling himself Dr Franz von Cannitz, who resurfaced over a decade later as an acquaintance of Melville's and a future British intelligence agent. He was Dr Armgaard Karl Graves.
¹⁹
His account of life in Port Arthur at the time is worth quoting.

Never in any place – and I know all the gayest and fastest places on earth – have I seen, comparatively speaking, such an enormous amount of wine in stock, or such a number of demi-mondaines assembled. Most of the officers had private harems. I often sat in the Casino and watched the officers of the First Tomsk Regiment, the 25th and 26th Siberian Rifles, practising with their newly supplied Mauser pistols on tables loaded with bottles containing the most costly vintage wines and cognacs. At such times the place literally [
sic
] ran ankle-deep in wine. There were over sixty gambling houses and dancing halls supporting more than a thousand
filles de joie.