The Spy Who Changed History: The Untold Story of How the Soviet Union Won the Race for America’s Top Secrets

It was not just mechanised harvesters and cotton pickers that Lenin imported to transform backward Russia, he adopted advanced US management techniques. The Soviet Union introduced the Taylor system of time and motion study – a technique to improve productivity – to encourage the scientific efficiency of labour in its factories. To much puzzlement, an army of officials armed with clipboards, stopwatches and tape measures appeared on factory floors. Russian workers were unimpressed and did not want to be timed, measured and subjected to flip charts. New technology from abroad, augmented with Gantt organisation charts – which broke down processes into their component stages – was supposed to lead to a rapid reduction in working hours and improvement in the quality of workers’ lives. It didn’t.

In a more successful step, the Soviets translated Henry Ford’s works into Russian as essential reading for factory managers. There was an official government campaign to ‘Do It the Ford Way’.6 By such innovative manufacturing techniques of mass production, the United States had overtaken the British Empire as the world’s number-one economy, helped in part by the Great War. Imported to the Soviet Union, these same techniques were expected to bring about the inevitable triumph of socialism. Capitalism was a smart, inventive beast. American business, as well as Marx, had much to teach those embarking on the sure road to socialism. The US had met and defeated the same challenges that confronted the newly formed Soviet Union, including how to industrialise with only untrained, unskilled workers and few managers. The US was the teacher, the model of mass production, an urbanised country boasting the highest living standards in the world. Copying US techniques and methods would turn Russia’s army of uneducated, conservatively minded peasants, tied to their traditions and land, into a progressive communist urban proletariat.

From the 1920s, hundreds of Soviet engineers were sent abroad annually on short foreign trips for hands-on training with new technology. They were instructed to gather as much helpful information as they could on their visits. It was not a difficult task in the US. One engineer described his surprise at the openness of the Americans he met. While visiting a factory, he and his comrades would be given unhindered access to a broad range of technical data. They could make sketches and take copies back to the USSR free of charge. Their host company did not disclose its patented secrets, but everything else was considered advertising for the firm. From such early trips, the Soviet leaders gained the idea that America, more than any other country, was wide open to industrial espionage.

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In October 1922, just a few weeks after the Reds’ victory in the Russian Civil War, an ex-Russian Orthodox seminary student and his close friend, a former Jesuit student, set in motion a more radical long-term reconstruction of Russia. In their frequent correspondence, they planned a transformation of their backward land, now shattered and starved by three wars and revolutions in short order.7 The lapsed Catholic, ‘Iron Felix’ Dzerzhinsky (his nickname arose on account of his ruthlessness and devotion to the Communist cause), was the founder of the Soviet security services. The former seminary pupil, Joseph Stalin, General Secretary of the Party, was on his path to become Lenin’s heir. In 1925, Dzerzhinsky became the first and only known intelligence chief to be given simultaneously a major economic post as Chairman of the Supreme Economic Council. The two friends could discuss almost anything.

In their shared desire for rapid change, Dzerzhinsky and Stalin emphasised the use of intelligence as one tool to tackle the economic crisis. Both men had a fine appreciation of the value of espionage: Dzerzhinsky was a spymaster, and his friend the most spied-upon man in history. Dzerzhinsky had a pivotal role in identifying the potential contribution of both Western technology and scientific and technological (S&T) espionage to the modernisation of the Soviet economy. He identified America, the world’s number-one technical innovator and leading industrial power, as a role model and target. Dzerzhinsky studied and grew to admire American industrial methods – most surprisingly those of the world’s first billionaire, Henry Ford, the pioneer of the industrial practices from which Dzerzhinsky believed the backward Soviet economy needed to learn. Dzerzhinsky wrote in 1925: ‘It is essential to engage in the study of Ford’s methods and their adoption in practice … Perhaps it would be worth recruiting from abroad practitioners and organisers of Fordism.’8 Dzerzhinsky’s ideas and recommendations were incorporated into the Five-Year Plans – Stalin’s centrepiece programmes to industrialise the Soviet Union at breakneck pace. Ford’s top architect, Albert Kahn, was recruited to design and build Stalin’s giant dual military/civilian-use factories along Ford lines, and was responsible for establishing automotive, tractor and tank facilities in the Soviet Union.

On assuming control after the death of Lenin, the new leadership decided enough was enough and immediately galvanised the entire efforts of the state to build up heavy industry. Amid enormous publicity, Stalin announced the first Five-Year Plan in 1928. The first and second Five-Year Plans proposed the creation of new capital-intensive aviation, automobile, tractor and chemical industries. Stalin’s plans were on a truly grand scale and required building over 1,500 modern factories between 1928 and 1933; yet he understood that the Soviet Union’s early attempts at going it alone to develop industry without adequate foreign help had failed. The most notable example was the first project at the vast Magnitogorsk metallurgical plant. The inexperienced Soviets had tried to build the plant at breakneck speed, cutting corners; as a consequence, urgent and extensive repairs to the twin blast furnaces were needed just days after first starting them. The production of steel was pushed back years. The lesson of such failures was that the design and building of large, technically complex industrial facilities was beyond Soviet capabilities without significant long-term foreign expertise. The help of the West was required and was sought once more – this time in the new form of fee-based technical assistance programmes, not long-term concessions. Stalin’s proposed commercial terms were attractive to foreign companies, as they were for a limited period and so did not require risky long-term investment. During the Great Depression of the 1930s Western companies desperately needed large orders, allowing the Soviet Union the opportunity to acquire advanced technology and technical skills quickly and cheaply.

Under the standard terms of the contract, a foreign firm would provide the Russians with a complete description of a project including specifications of equipment, machines and mechanisms. They transferred all the technological secrets, including patents, and sent representatives to the USSR to supervise the construction and start-up of the facility. The Russians had to compensate the foreign company for the cost of manufacturing drawings, business trips and the work of its employees in the USSR and provide the necessary living conditions. The international company would receive a fixed profit as a percentage of the estimated cost of the work. The contribution of US companies and engineers to the success of the first Five-Year Plan was enormous, yet it is generally forgotten, especially in America. Around 1,700 US engineers entered Russia in 1929 to work on major industrial projects.

The plan to work closely with the US had its genesis in September 1927, when Stalin set up a permanent commission of the Politburo of the Communist Party of the Soviet Union to manage technical and scientific relations with the United States. He stated: ‘It is clear to me that the USA has more grounds for extensive business relations with the Soviet Union than any other country.’9

The vast new industrial capacity developed under supervision of US engineers boosted the economy. But most of them left in 1932–3 when hard currency ran out, sent home unless they would accept payment in roubles. From 1931 the USSR could only afford to import essential US technology. To survive on Stalin’s route to the future, there was a need for elite engineers able to invent local solutions. The Soviet government had sought from its international partner an efficient balance of trade and a long-term supply of credit, but the US refused. On 25 August 1931, Stalin declared:

Because of the foreign exchange difficulties and unacceptable conditions for loans in America, I demand an end to all business contracts with the United States. Instead we must seek every opportunity to break existing agreements. In the future all orders will be placed with European or Soviet factories, making no exceptions, even for the most important construction projects.10

The world’s first Communist state had spent so heavily in the first stage of the investment plan that it had run out of money and credit. Turning the Soviet Union from a country of peasants with wooden ploughs into a modern industrial society was proving prohibitively expensive. Despite Stalin’s exploitation to the full of American commercial terms, he now needed to rely on industrial espionage. The Soviets pressed on with their plans, but with no cash to pay engineers from abroad, they were required to use their own experts, helped by the information provided by their intelligence gathering abroad.

Until the money ran out, every large Soviet enterprise built in this period received most of its equipment from American or European engineering companies. As diplomatic relations between the US and the USSR improved, the floodgates had opened to facilitate the transfer of skills and technology to Russia. All Soviet commercial activities in the United States were overseen by its single agency, the American Trading Corporation or AMTORG, established in 1924 with offices on New York’s Fifth Avenue, in Moscow and eventually in several other cities in the USSR and the USA. Although nominally independent of the state, which was a requirement if it were to obtain legal status to trade in the United States, it was the sole Soviet reseller as well as being tasked with providing information on all aspects of US business. All commercial deals and contracts with American firms, experts, and payment for their services went via AMTORG. It would develop a well-deserved reputation as a veritable nest of spies, its employees under constant US counter-intelligence surveillance.

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The Five-Year Plans had three interrelated goals: to build an industrialised society, to create an educated population, and to ensure that the Soviet Union had the means to defend itself in the event of an attack. Stalin spoke of the imperative to modernise the Soviet economy as fast as possible to meet the imminent imperialist threat. A substantial challenge for Stalin’s Russia was how to protect its vast land borders and natural resources. After invasions from the Polish King Stephen Báthory,fn1 the Swedish King Gustav Adolphus,fn2 the French Emperor Napoleonfn3 and the German Kaiser, followed by the Allied intervention, the lesson of history was that the Soviet army must be equipped with the most up-to-date weapons to deter further invaders. Dzerzhinsky had analysed the Tsar’s defeat. Iron Felix’s assessment of Russia’s performance in the Great War was strikingly similar to that of the current Russian foreign intelligence service, the SVR (Sluzhba Vneshney Razvedki), whose official history mocks the naivety of the Tsarist government in embarking on a modern war without the technical resources to equip its armed forces.11 Dzerzhinsky’s studies for the Supreme Economic Council in 1924–5 emphasised that the reason for defeat lay in the dependence of the Tsarist war effort on imports of arms and munitions from its Western allies. In 1914, Russia could not even manufacture sufficient rifles for its army. It was not until 1916, thanks largely to British finance and US industrial expertise, that Russia developed a somewhat more adequate munitions industry. The Western allies had rescued the wartime Tsarist arms industry for their own war aims but were unlikely to help Communist Russia. Like defeated Germany, the Soviet Union was treated as a pariah state.

The British Empire was seen as the likely enemy. Stalin was privately convinced, as Dzerzhinsky had been, that the modernisation of the Soviet defence industry also required S&T from the West – first and foremost from the United States. And, since Stalin believed that war with the imperialist powers was inevitable, S&T was therefore a top priority. As he was to declare in February 1931 in a speech to industrial managers: ‘We are fifty or a hundred years behind the advanced countries. We must catch up in ten years. Either we do it, or they will crush us.’12 Though he did not realise at the time who the most dangerous potential enemy would be, the forecast was to prove prophetic.

Given the urgency, Stalin turned to his intelligence service. His library gives an extraordinary glimpse into his thinking as he marked up the passages of his reading that he found most insightful. Stalin’s deep interest in developing S&T operations in the United States grew from a fascination with US and British writing on espionage. Dzerzhinsky’s death in 1926 seems to have slowed the development of S&T, but only for a short while. In 1929, the autodidactic Stalin devoured the informative book Spy and Counterspy: The Development of Modern Espionage by the US writer Richard Wilmer Rowan.13 Stalin’s copy survives in his archive, with notes scrawled in the margin. It was from this US book that he learned how to direct and organise intelligence-gathering operations. He was attracted to the idea of using spies, not least because, as Rowan argued, they were inexpensive and efficient. In Rowan he had found the solution to his problem of how to acquire the best technology without paying for it. But he needed extraordinary men and women to become his spies.

Stalin’s copy of the Russian translation of Rowan’s Spy and Counterspy – special edition for Soviet Military Intelligence. Stalin’s note says, ‘Abridged translation from English’

Shumovsky’s reports had highlighted the extensive problems of the armaments industry. Given the perceived threat, the country had to develop its industrial capability to sustain a prolonged fight. Without modern factories to manufacture arms, Russia remained vulnerable to a foreign invasion. Some modernisation of the armed forces was achieved thanks to secret Soviet-German military cooperationfn4 during the 1920s, but not enough. Both Germany and Russia believed, correctly, that the other was spying on them. Their shared distrust of the well-armed buffer state of Poland did not provide enough common ground to make them real allies. Moreover, the Germans were concerned that the Moscow-based Comintern (Communist International) interfered, sometimes violently, in their domestic politics. The Soviets, on the other hand, were convinced by the evidence that they were only gaining access to obsolete German military equipment, not the latest and best.14 The issues were greatest in aviation. Dzerzhinsky highlighted to Stalin a joint venture to design and build aircraft with the German manufacturers Junkers in Moscow as a particular failure. The Soviet Union urgently needed a modern air force and Germany could not provide one. The United States, not Germany, Dzerzhinsky convinced Stalin, held the key to the future of the Soviet aircraft industry. But they also knew that only some American industrial expertise could be openly obtained through commercial contracts. In 1925, the Foreign Department (INO) of the NKVD adopted S&T operations as one of its objectives for the first time.15 The US aviation industry was one of the key targets. Shumovsky and his cohort were the men that Stalin would come to rely on to help fulfil his dreams to industrialise and defend his country.

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Stalin’s Russia was the first country in the world to try to identify each year its ablest, most loyal workers to train as scientists and engineers. Some of these elite scientists and engineers would later become spies. As part of the Five-Year Plan launched in 1928, a thousand of the best and brightest young Communist Party members (the parttysiachniki) were selected to receive the finest higher education on offer in Moscow and Leningrad. The Party had identified Shumovsky during his three years’ work at the Ministry of Finance as a potential future leader, a Party cadre. Already a qualified pilot, he was one of a very few selected to study aeronautics at the elite Bauman Institute, where his Professor of Aerodynamics was none other than Andrey Tupolev, Russia’s most famous aircraft designer. Teacher and pupil became fast friends. Towards the end of his course at the Bauman, Shumovsky was invited by the local Committee of the Communist Party to a meeting at the Lubyanka, the headquarters of the NKVD, that would once again change the course of his life. At this meeting, he met Stanislav Messing, the head of INO, and the legendary Artur Artuzov, then the deputy head.

As the foreign intelligence arm of the NKVD, INO was in 1930 tiny and poorly funded by the modern standards of espionage agencies. It deployed only ninety-four agents abroad to cover vast areas of responsibility and geography. The proposed addition of seventy-five new intelligence assets in the United States, working for up to three years, was a massive coup.16 It was the largest and most expensive operation ever attempted by INO and required close cooperation with Military Intelligence, called at the time the Fourth Department of the Red Army. The members of the NKVD’s American desk in Moscow Centre – the name given to the headquarters of the Foreign Intelligence department – that directed the highly successful campaign in the USA all sat in a small room and were perhaps at most five strong.17 It was a small team to take on the FBI. Artuzov, by 1931 the head of INO, was the architect of some of the greatest Soviet intelligence coups. He was responsible for the capture and execution of ‘Ace of Spies’ Sidney Reilly in the elaborate ‘Trust’ sting,fn5 one of the greatest counter-intelligence operations of all time, earning a deservedly prominent place in espionage history. Artuzov was also responsible for setting in train the recruitment as agents of Communist students at universities across Europe who later in their careers might hold significant positions of influence in their governments. The programme’s best-known products were the Cambridge Five.

It was the prickly aircraft designer Andrey Tupolev who insisted on the recruitment of Shumovsky for intelligence work. Since 1925 INO had been tasked with gathering S&T on top of political intelligence. There was a significant overlap with the work of Military Intelligence. Under the Five-Year Plan, the demand for S&T ramped up, creating the need for a fresh approach. A new type of intelligence officer with a unique set of skills was required. Besides the ability to speak languages and operate in a foreign country, this new breed of spies had to be at the top of their field in their chosen technical specialisation. Tupolev needed an aeronautics specialist on the ground in the US to bring TsAGI – the Moscow-based Central Aero and Hydrodynamics Institute, the country’s leading centre of aircraft design – answers to thorny questions, not just blueprints. Above all, the agents needed to be unquestionably loyal.

Shumovsky’s interview at the NKVD was a mixture of background checks and ideological questioning. Given his record as a Russian Civil War hero, endorsements from the local Committee of the Communist Party and Tupolev, he passed. Accepting the job without a moment’s hesitation, for he was a Party loyalist prepared to do anything for his proletarian motherland, he began a year of intense training, starting in Leningrad. Artuzov was responsible for developing the Soviet spy training programme using veteran practitioners as teachers. Later he industrialised spy training by building a dedicated school in the woods outside Moscow. Some previous operations had proceeded with no training at all, even in basic foreign languages; intelligence operatives used the cover of being a foreigner to explain away their accents and lack of language proficiency. One Soviet agent deployed to England had to get blind drunk to avoid exposure when he discovered the ambassador of Hungary, the country he claimed to be from, while speaking not a word of the language, was arriving to join the house party. Luckily, his English aristocratic hosts were used to such eccentric behaviour.18

Later, KGB defector General Oleg Kalugin would describe attending large classes in the 1950s that trained hundreds of newly minted agents to operate both domestically and abroad.19 An heir of Shumovsky, Kalugin was to attend Columbia University to complete his assimilation into American life. By then, espionage training was conducted with military-style discipline, befitting those entrusted with protecting the Revolution. Shumovsky had no such formal training, but he received instruction from experienced officers in the skills of intelligence gathering, agent recruitment and how to avoid being followed. He also learned radio operations, working with codes and had a refresher on shooting a pistol. He was taught how to microfilm documents for ease of storage, concealment and transport.

Shumovsky was to operate as an intelligence officer without the benefit of diplomatic cover. As the USA was always his intended destination, he undertook a six-month intensive course in the English language, American customs and way of life. Intelligence officers, even novices, were well paid and, more important in a land of shortages, fed three hot meals a day. For recruits joining the NKVD, the experience was life-changing. One of them, Alexander Feklisov, described sleeping in a real bed for the first time in his life at the training school. The intelligence code included a vow of silence, which included never admitting to working for the organisation, even to one’s parents. A new recruit would need to develop a good cover story, for his friends and family.20

Shumovsky’s mission to enrol at MIT as a science student evolved into the perfect cover for a Soviet intelligence officer on a long-term S&T assignment in the USA. The plan was that he would enter the US concealed among a large party of students, thus attracting little attention. In 1930, the best of the ‘Party Thousand’, the crème de la crème, were chosen to study abroad. The Soviets used scarce foreign currency and gold reserves to give their elite the best education money could buy. With his exemplary academic record and political background, Shumovsky made the list with the help of the secret service. He resembled his fellow travellers in every respect. His background was identical to that of his companions, as he was a recent graduate of Moscow’s premier technical university. Crucially, as a student studying at a leading academic institution Shumovsky was granted a long-term visa by the US government without being asked probing questions, unlike an AMTORG employee.

As part of the plan, the Party Central Committee appointed a ‘plenipotentiary’ official to monitor the progress of the students abroad and send six-monthly reports back to Moscow.21 This official had the power to order back to the Soviet Union any student making unsatisfactory progress or proving to be politically unreliable. However, their main job was to coordinate the information gathering. Raisa (Ray) Bennett, a Military Intelligence officer, was appointed to this important role.

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Stalin’s final priority within the Five-Year Plans was improving worker education. Among the greatest achievements of the Revolution had been universal literacy and access to education. The Tsarist government had feared education; successive rulers took active measures to limit literacy levels in their subjects by taxing village schools. They came to believe that if they allowed their people to read, they would become revolutionaries. The prohibitive measures ensured precisely the outcome the government feared.