Australia's First Spies

With the demise of the Pacific Branch and the Japanese-language program, Australia lost its fledgling intelligence agency, leaving the armed services as the only active intelligence collectors for the nation. And even there, the scaling down of the Japanese-language program saw the military trainees enrolled in it diverted into other roles within the military or, in the case of the RAN, being sent off to work for the RN’s China Station in Hong Kong. Although, from an Australian national perspective, the loss of RAN personnel to the RN was less than optimal, it did ensure that the ACNB and the RAN remained involved in the collection of foreign intelligence, and that it retained a level of expertise in this work that the Australian Army and the new Royal Australian Air Force (RAAF) could not.

At the time that the battle between William Watt and Billy Hughes was hotting up, the ACNB and RAN were facing dramatic cuts in budgets and operational capability. As part of a strategy to limit the impact of these cuts and to ensure that the RAN remained a viable part of the Admiralty’s Pacific force, the ACNB and the Admiralty managed to inveigle the Australian government into inviting Admiral of the Fleet and hero of the Battle of Jutland, Viscount Jellicoe of Scapa, to conduct an enquiry into the defence of the Commonwealth. This enquiry was charged to determine two things for the Australian government: first, what was needed to ensure Australia’s defence; and secondly, what would it cost to have the RN maintain a large fleet in Australia’s region.1

Volume III of Jellicoe’s report is dedicated to intelligence collection, reporting and management, and is important in our story. In this volume, Admiral Jellicoe identified the need for an independent intelligence branch within the Australian Naval Staff, and for the ACNB to complement this with a coastguard or, failing that, a coastwatching organisation. Jellicoe’s enthusiasm for a naval intelligence organisation came from his personal experience of the support Room 40 provided the Home Fleet when, under his command, it interdicted and engaged the German High Seas Fleet at Jutland. In his report, Jellicoe wrote:

The war has shown the exceeding value of a first-rate Naval Intelligence Organisation. It is no exaggeration to say that the great majority of the information obtained for Great Britain during the war, apart from actual military intelligence, was the work of the Naval Intelligence Division at the Admiralty.²

At the time Jellicoe was writing his report, there was a section of the Australian Naval Staff that handled intelligence activity, but it sat within and was subordinate to the operations department. It also needs to be said that, between 1914 and 1918, Naval Intelligence, under the leadership of Thring and others, had done an excellent job. What Jellicoe was after, however, was the duplication of the Admiralty’s intelligence system in Australia. This would provide the RAN, the ACNB and the Admiralty with the flow of timely and accurate intelligence that they required to conduct their operations.

To increase the intelligence-collection capability of the Australian Naval Staff, Jellicoe also recommended that in wartime his suggested coastguard should operate the high-power and medium-power signal stations used to communicate with the fleets and with His Majesty’s (HM) ships operating closer to shore. As part of this activity, they would detect and fix the positions of all aircraft and surface vessels using ‘Y’ Procedure and fix the positions of RN and RAN Ships using ‘B’ and ‘X’ procedures (see Chapter 10). These stations would also have ‘special’ SIGINT duties, intercepting and reporting radio traffic, including the communications of neutral countries. Jellicoe was recommending an Australian SIGINT service of some complexity and sophistication.

With the failure of the government to adopt Jellicoe’s recommendations, the ACNB had no choice but to fall back on the pre-1914 system that had been formalised in the Admiralty Instructions of October 1915.⁴ These ensured that the ACNB and RAN retained access to Admiralty intelligence, including the latest techniques and technology for collecting it, by supplying intelligence and weather information to RN ships deployed to the Indian and Pacific oceans and in the areas around Australia.⁵

The Australian region was subdivided into districts in accordance with Admiralty instructions. These districts were defined by the waters off each state and territory, and around Christmas and Cocos islands, New Guinea and the other islands to the north. Responsibility for reporting intelligence matters was delegated to the senior naval officer (SNO) resident there; New South Wales was the only district with a dedicated intelligence officer, in Sydney.⁶

Each SNO was required to run a small intelligence centre and to manage a network of reporting officers. These were recruited from among local officials and government officers, including postmasters, harbourmasters and other functionaries, who were posted in remote locations. They were to provide intelligence reporting of maritime activity, including ship movements and suspicious activity, in exactly the same way as the DNOs and Sub-DNOs. The difference was the reporting officers were not naval personnel and they were not a cost for the ACNB.⁷

Seagoing intelligence officers were also employed, but their intelligence role was supplementary to their job on board. Thus, deck, gunnery or supply officers could find themselves with intelligence-collection and reporting duties for which they had only the most basic guidance. In line with Admiralty practice, however, the paymaster officers steadily came to dominate the intelligence role. Only on flagships was an officer appointed to manage intelligence, and even there, the officer’s intelligence role was on top of other duties.

The only development in the system was an increased interest in the creation of a voluntary and, most importantly, unpaid coastwatching service. The idea of a coastwatching service was nothing new in 1919 when Jellicoe conducted his enquiry. In fact, it can be argued that the story of Australia’s coastwatchers really began on 21 February 1912, when the 32-year-old harbourmaster at Broome, the colourful and energetic Welshman Captain Ancell Clement Gregory, applied for a commission in the RANVR. In the documentary evidence, Ancell Gregory comes across as what Australians call ‘a bit of a chancer’, a man on the make. His letter to Captain Frederick Tickell, the Director of Naval Reserves, leaves the reader with a strong impression that Ancell Gregory was a man who made his own luck.⁹

Gregory appears to have struck up an acquaintance with Tickell on board HMAS Parramatta during the time it stayed in Broome on its maiden voyage to Australia. The basis for Gregory’s application was that there was a need for a commissioned naval officer in Broome because there were now twelve ‘white divers’ coming to Broome to work as pearlers and as many as another 40 expected for the next pearling season.¹⁰ This large contingent of white divers included, according to Gregory, many ex-RN divers, who could be a considerable asset if they were formed into a RANVR unit, which a newly commissioned Gregory could command. As pitches go, it was a good effort.

The influx of white divers into Broome was a result of the Australian government’s requirement that white men replace Asian divers in the pearling industry before the end of 1913.¹¹ The impact of the Immigration Restriction Act had caused an enormous degree of dislocation within pearling that saw almost the entire Australian pearling fleet, including James Clark and Reg Hockings’ Wanetta Pearling Company, depart Australia for the NEI rather than comply with the Act. Because of this, the Commonwealth encouraged the replacement of Japanese and Asian divers with white divers. This was the basis for Gregory’s assessment.

Navy Office’s reply to Gregory may have been cool, but it was not a rejection. The idea of using Gregory appealed to someone, who wrote on the file that such an appointment would be ‘a good one, meeting present requirements’.¹³ The problem doesn’t appear to have been Gregory himself, but a concern that the divers and divers’ attendants Gregory was proposing to recruit would most likely still be members of the Royal Fleet Reserve and thus unavailable for service in the RAN.¹⁴ Gregory had overplayed his hand.

Navy Office’s interest was piqued, however, and the naval representative in London was instructed to find out if the divers could be made available to the RAN and to enquire what rank Gregory had held while in the RN. Now it all came unstuck.¹⁵ Admiralty informed the ACNB that it was quite happy to let it recruit the ex-RN divers, who would have been automatically struck off the reserve list when they left the United Kingdom, but that as far as the Admiralty was aware, no divers or divers’ assistants had done so.¹⁶ The Admiralty could also find no evidence of Gregory having ever served in the Royal Naval Reserve.¹⁷ This news killed off any enthusiasm to appoint Gregory, and the matter was dropped.

If Navy Office had known Gregory as well as the residents of Broome did, they would have understood that he was not a man who let a fish go once he had decided to land it. Seven years later, on 18 May 1919, Gregory wrote to the Honourable H. Gregory, MHR (no relation), asking for his assistance in obtaining a commission in the Naval Reserve. The Honourable H. Gregory wrote to the Honourable A. Poynton, Acting Minister for the Navy, who placed the matter before the ACNB. The board again declined the offer of service, but by 29 March 1920, a telegram ordering Captain Gregory to attend Navy Office and report to the secretary for his orders was sent following his appointment as an honorary lieutenant in the RANVR on 26 March 1920.18

Around Broome, Ancell Gregory was seen as quick, ruthless and as a man with strange friends, including the local Japanese. Gregory had quickly worked out that if you needed to borrow money in Broome, you could get it from the Japanese because they were prohibited from owning luggers and so were keen to arrange partnerships with white businessmen prepared to act as frontmen. Ancell Gregory was more than happy to act as a frontman for his Japanese partner, Murakami Yasukichi, a local merchant and photographer.

The relationship between these two men blossomed to a degree that it caused considerable disquiet among the white population of Broome. Gregory not only ignored this, but in 1912, while in Britain overseeing the fit-out of two Western Australian government vessels, caused even more consternation by letting Murakami’s family live in the Gregory home, which just happened to be located in the most prestigious white suburb of Broome. This act, as well as many more, created an outcry that Gregory ignored.

Whatever Gregory’s posturing about his naval background and his suitability for a commission in the RANVR, he appears to have been a loyal and freethinking friend.

Gregory and Murakami seem to have been successful and by 1909, Gregory was able to give up going to sea himself. Gregory and Murakami retained control of their large pearling fleet and other interests through the artifice of a company called Gregory and Co., nominally owned by Gregory’s brother F.C. ‘Clem’ Gregory.¹⁹ All of this was exposed in January 1911, when one of Gregory and Co.’s indentured workers, Tommy Kitchie, was charged with wilful disobedience and turned up in the Broome Police Court with a lawyer to represent him. It is thought that Gregory’s enemies put up the money for Kitchie’s lawyer. Kitchie won the case when the lawyer argued that although Ancell Gregory had transferred the ownership of his luggers to Gregory and Co., he had not transferred the permits for indentured workers and thus, as Gregory and Co. was not Tommy Kitchie’s master, he could not have been wilfully disobedient. The Broome establishment got some of their own back.

As to his commission in the RAN, Gregory’s blend of non-conformist showman, adventurer and ruthless businessman finally worked, and on 26 March 1920 he was appointed to an honorary commission in the RANVR.²² The secret orders issued to Honorary Lieutenant A.C. Gregory on 29 March 1920 required him to forward ‘certain information’ from the coast between North West Cape in the south and Cape Londonderry in the north, to meet the requirements of Naval Intelligence.

The secret orders issued to the unpaid Honorary Lieutenant specified that he was to report all information on ‘aliens’, especially Japanese, reports of any unauthorised landings, information on fuel coal and reliable men with specialist qualifications, and information on unsurveyed harbours, anchorages and approaches along the coast.²³ Gregory was required to report once a month by registered post to the Secretary, Department of the Navy, in Melbourne. He was to number his reports consecutively from 01 and to send them double-enveloped, the inner envelope being marked ‘Confidential’, and the outer envelope bearing only the address. They were to be sent by British ships only. It was also made clear to Gregory that he was not to incur any expense on behalf of the Commonwealth without the prior sanction of the ACNB. Gregory dutifully acknowledged his instructions and began work as Australia’s first coastwatcher, a group that would share his entrepreneurial aspirations.²⁴

The role to which Gregory was appointed was, although honorary, still official. All this meant was that it did not cost the ACNB money, not that it was seen as unimportant. An indication of the significance the ACNB attached to the role was the orders given to the DNO at Fremantle to meet Lieutenant Gregory on the SS Wandilla when it called at Fremantle en route to Broome and provide Gregory with a copy of the Australian ‘Disc’ Code and instructions for its use in sending secret telegrams. The DNO was also ordered to supply Gregory with the stationery, forms, envelopes and stamps necessary for his duties. Again, the ACNB emphasised that Gregory was to be made very aware of the ‘system for accounting for the expenditure of “O.S.” [Official Service] stamps’.²⁶ It seems that in 1920 these stamps caused a great deal of concern.

The instructions covering foreigners, especially Japanese, were quite extensive. Gregory was to report on the numbers employed in the territories within his observation and on the seagoing craft he became aware of. The number of each nationality or race was to be reported as well as the reasons for any change in these numbers. He was also required to report on any suspicious characters and on the behaviour of foreigners towards local citizens. All incidents of unrest between races and groups were to be reported, as were intermarriages.²⁷

For a man with close business links to Japanese businessmen and particularly to Murakami, these requirements must have been either amusing or disconcerting. Given Gregory’s approach to life, I suspect he found them amusing. It appears from the file that the First Naval Member may have suspected this, as he expressed concern about Gregory reporting on individuals he knew, asked that the extent of this reporting be minimised, and stressed the need for strict confidentiality and discretion be impressed on Gregory.²⁸

In this case, the ACNB was intent on winning part of the battle with the government over Jellicoe’s recommendations—a voluntary coastwatcher service was the next best thing to paid coastguards. Admiral Creswell made it clear that ‘as this Intelligence system is now being started I suggest Capt. Thring should be written to and asked to obtain from the Naval Intelligence Department 25 copies of any “questionnaires” issued by that dept.’.³¹

Gregory quickly set to work. His Report No. 1 was sent on 2 May 1920 and Report No. 2 on 28 May. These reports covered many of the subjects he had been directed by the ACNB to address.³² Captain Cochrane found Gregory’s reporting ‘very interesting’, as did Joseph Cook, the Minister for the Navy.³³ By 1 July, Captain Cochrane was writing to the new First Naval Member, Rear Admiral Sir Percy Grant, that the ‘appointment of this officer [Gregory] has already justified itself’.³⁴

The reasons for this praise to Admiral Percy were that he was newly appointed and Cochrane was attempting to counter a negative minute from Joseph Cook, who was doubtful about extending the system because he feared ‘it may create another sub-department at Headquarters’.³⁵ Cochrane argued that Gregory’s reporting showed an unpaid coastwatcher system could work and that, as the men appointed would be unpaid, it imposed no new cost. He even addressed Minister Cook’s concerns about new departments at HQ by pointing out that the coastwatchers would be reporting to the already existing Naval Intelligence Section.³⁶

Cochrane’s defence of the proposed system appears to have worked. Later, sometime around 1931 or 1932, an undated report with the title ‘The RAN and Australian naval policy’ detailed that Navy Office was a ‘Naval Intelligence Centre in the world wide Admiralty Intelligence Organisation’ and that the Australian part of this organisation ‘extends, mainly on a voluntary (unpaid) basis, throughout Australia and the mandated and certain other territories’.³⁷

Ancell Gregory’s application to be appointed a commissioned officer in the RAN had that most necessary of recommendations: it had come at the right time. The ACNB now needed to find men of Gregory’s stature and position to create an organisation somewhat along the lines of that recommended by Jellicoe. They sought to supplement his appointment with a ‘gentleman who has just gone to Fiji to take up a govt. appointment…if the members of the Naval Board desired’.38

By 1939, this small beginning would result in more than 700 coastwatchers around the Australian coast and in the islands to the north and north-east of the continent.³⁹ In August 1939, it would fall to Lieutenant Commander Eric Feldt to take the peacetime coastwatcher organisation to war. Preparing it for war would take more effort than anyone realised in 1920. He would have to deal with the issues that arose from the original voluntary structure of the organisation, but that is a story for later (see Chapter 13). In 1939, Ancell Gregory was still in Broome, still successful and still eager to serve.⁴⁰

The coastwatcher system that Eric Feldt would later re-energise would prove to be one of the most effective and reliable HUMINT systems that operated on any side between 1939 and 1945. It would also be one of the most highly decorated military units in Australian history, even though it was mainly comprised of dislocated ‘chancers’ living in remote places.