Australia’s ’nest of traitors’, the ‘Case’ and a day at the beach with KGB agent Ian Milner.
“The purpose of the Petrov Affair was to track down spies in the Australian government. Evidence of their activities between 1944 and 1948 had come from the decrypting of Soviet signals, a project known by its US tag, VENONA. The cover-up began at once. The Western agencies did not want the Soviets to know that their codes were being cracked. The FBI did not tell the CIA about VENONA until 1952; the CIA’s in-house historian suspects that President Truman was never informed.
Once the US became aware that a 1945 UK strategic plan had passed through the Australian government to the Soviets, Washington reduced Canberra’s access to classified information. By July 1948, a complete embargo applied. This blackout was disastrous for the Empire because the UK wanted US expertise for the nuclear rocketry at Woomera. The ban suited the US strategists by keeping their allies on a short lead.
The mess in Canberra had to be cleaned up. On 7 February 1948, MI5 head Sir Percy Sillitoe and a counter-intelligence officer, Roger Hollis, arrived to uncover how “top secret” material had been leaked. After a search of file records, the Defence Department concluded that an External Affairs officer, Ian Milner*, was among the culprits. In July 1948, Prime Minister Chifley read Sillitoe’s report in London when the British government again urged him to set up a new intelligence organisation. In August, Hollis returned to Canberra with more MI5 men to establish ASIO. That agency devoted itself to pursuing the nest of traitors, in what became known as “the Case”.
Three suspects in External Affairs had known links to the Australian Communist Party, Jim Hill, Ian Milner and Ric Throssell. That narrowing of who leaked the secrets did not establish the chain of command back to their contact with Soviet intelligence, a person referred to as “K”, “Klod” or “Claude”. The most likely Controller was the Communist official, Wally Clayton.
The pressure was on ASIO to solve the crime on its patch. The Canadians had scored with the defection of Igor Gouzenko in 1945, followed by its in camera Royal Commission. ASIO hoped to find someone in the Soviet Embassy who would do the same here. That defection would establish ASIO’s credentials among allied intelligence agencies and give Colonel Spry “secrets” to trade. He “opposed to giving America anything for nothing”.
*Header pic: Ian Milner, a KGB agent in the Department of External Affairs, on holidays in Lorne with his wife Margot in 1941. Picture: Alexander Turnbull Library