Three

GAMBIT

Leaving London behind, Margaret and Sidney Reilly proceeded to Russia in June 1899 where they remained until the autumn of the following year. During the summer of 1900, Reilly travelled around the oil-rich Caucasus, visiting the ports of Petrovsk and Baku while Margaret remained in St Petersburg. It is noteworthy that during these months, War Office records note that: ‘Mr Stevens (at the British Consulate in Baku) has an agent who travels between Petrovsk, Baku and along the T.C. Railway and reports to Stevens by word of mouth’.¹

Whatever the nature of the information being supplied, it would appear that it was of sufficient interest to warrant payment being made to the informant. The scenario certainly fits Reilly’s ‘modus operandi’, although there is no positive proof that the informant was actually Reilly.

In September 1900, the Reillys made their way to Constantinople and took a ship to Port Said in Egypt. Here the SS Rome departed for Colombo, where they again changed ships for the final stage of their journey to Shanghai via Penang, Singapore and Hong Kong. After several months in Shanghai, they proceeded to Manchuria, arriving in Port Arthur during the early months of 1901.²

Life in Port Arthur was not only primitive by comparison to the one they had led in England and Russia, it was also at the very epicentre of a simmering regional conflict of interest between Russia and Japan, which before too long would break out into open hostility. Located at the tip of the Liaotung peninsula, the port held great strategic significance, due to its commanding position on the Gulf of Chihli, which gave access to the Chinese capital of Peking. In 1898 the Chinese had, by way of a lease, conceded the peninsula to the Russians, with the greatest of reluctance and much to the chagrin of the Japanese. The Russians had renamed the Port of Lushun Port Arthur and made it the base for their Pacific fleet. The harbour was, without doubt, the perfect defensive location, shielded by ‘the tiger’s tail’, a natural deep-lying peninsula. This natural fortification was further reinforced by what was reputedly the strongest fortress in China.

To the Japanese, Port Arthur was a token of Russia’s desire for naval supremacy in the region, an aspiration that they, as an emerging naval power themselves, could not countenance. On the economic front, the two powers were equally at loggerheads in that they were both competing for the same unexploited natural resources in Manchuria and Korea. In the same way that Japan saw Russia’s annexation of the Liaotung peninsula as an ominous sign in the military and naval sphere, the continued expansion of Russia’s railway empire into Manchuria raised economic danger signals for the Japanese. While trying to contain Russian expansion by diplomacy, the Japanese were at the same time preparing for the contingency of war.

Reilly entered this cauldron of intrigue determined to make the most of the business opportunities that beckoned. At first sight, his reported activities in Port Arthur seem to have little or no logical connection. Records, for example, indicate his involvement in lumber trading, real-estate speculation and shipping. Closer inspection, however, reveals that all these ventures were effectively linked by the mutual involvement of one Moisei Akimovich Ginsburg.

Ginsburg, born on 5 December 1851 in Radzivilov in the Ukraine, had long-standing associations with the Rosenblum family. His early life was quite typical of any Jew in the Russian Empire. Born into poverty, he started work at the age of eleven by writing out labels at the local customs house. At fifteen he went to the seaport of Odessa from where he proceeded to Germany, England and America. Having saved $90 working in San Francisco, he bought a third-class ticket for a ship heading for China. On the way the ship docked at the Japanese port of Yokohama, where Ginsburg took an immediate liking to Japan and decided to stay there. By 1877 he had set up his own trading company in Yokohama supplying ships sailing in Japanese waters. He soon gained a reputation as ‘the only Russian in Japan who knew perfectly the local conditions’.³ The Russian Pacific fleet, then based at the port of Vladivostok, was only in its early stages of development and its facilities struggled to supply the fleet with even the barest of essentials. Ginsburg therefore stepped in and within a few short years had become indispensable to the Russian navy.

Duke Kirill Vladimirovich, who raised the Russian tricolour over Port Arthur in 1898, recalled Ginsburg as a ‘benefactor on whom the entire Pacific navy dpended… everything – from a pin to an anchor, and from rivets to a smoke stack – we got everything from Ginsburg’.⁴ It was here, at the new base of the Russian Pacific fleet, that M. Ginsburg & Co. set up its new head office on Port Arthur’s main thoroughfare. The import-export company now had branches in Nagasaki, Yokohama, Chemulpo, Odessa and Singapore, and an annual turnover of over 1 million roubles.

With his flair for languages and business, Reilly was seen as a distinct asset when he joined the staff of Ginsburg & Co., where he worked initially under G.M. Gandelman, Ginsburg’s office manager.⁵ In addition to ‘direct’ trading, the company also acted as agents for other enterprises such as the East-Asiatic Company, a steamship line with branches in Odessa, St Petersburg and Copenhagen. Reilly was charged by Ginsburg to deal directly with all the line’s business and in this connection Reilly attended a major trade conference on behalf of the company in February 1902.⁶ Reilly’s responsibilities as representative for both companies thus explains why East-Asiatic’s business address in Port Arthur is the same as that of Ginsburg & Co.⁷ Also trading from the same address was ‘Grunberg & Reilly’, which along with the American firm Clarkson & Company was the main importer of American lumber.⁸ Reilly’s business partner in the lumber business, V. Grunburg, was, according to East-Asiatic records, also a representative of the naval steamship company and the Chinese East railway.⁹

The approaching war with Japan was no secret for Moisei Ginsburg, who had a web of agents in Japan and China picking up news and speculation from some of the most informed sources. After the war, Ginsburg was to claim that he had warned the Russian navy of Japanese intentions, but had been overlooked or ignored.¹⁰ It is equally possible that this claim may have been made to deflect criticism that he had been profiteering during the war. He further countered later criticism by claiming, with some justification, that his foresight had enabled the Russian garrison to hold out for two or three months longer than they would otherwise have been able to do.

Thoroughly convinced that war with Japan was inevitable, Ginsburg and Reilly had been purchasing enormous amounts of food, raw materials, medication and coal. On 10 July 1903, for example, the Russian War Ministry in St Petersburg wrote to the Russian-Asiatic shipping company in Port Arthur, asking them to make enquiries about provisions sent to Grunberg and Reilly, intended for delivery to the 4th East-Siberian Rifle Regiment. Needless to say, the regiment was adament that the shipment had never arrived. What happened to this and indeed other missing shipments remains a mystery. There were also reports that Reilly was speculating in ground-lots during this period, another indication that he was well aware of what was looming.¹¹ In addition to the ample provisions that were ordered and purchased from Ginsburg & Co. by the Russian Naval Ministry, the company amassed a stockpile at its own expense. For example, 150,000 roubles worth of medication and dressings were purchased some months before the first shot was even fired.

While the growing gulf between Russia and Japan was creating understandable tension in the Far East, and within the Port Arthur community in particular, closer to home Reilly’s marriage to Margaret was also under strain. What for him had always been a marriage of convenience was, for her, something very different. It is highly unlikely that she would ever have taken the risks she did five years earlier if the objective had been anything less than marriage to a man she truly loved. While Margaret no doubt found her socially restricted life dull, Reilly himself found the colonial atmosphere of Port Arthur very much to his liking. With Chinese servants to cater for his every whim at home, and the drinking and gaming clubs to while away the evenings, he lived to the full the persona of the English gentleman, albeit one with an ‘Irish father and Russian mother’. A recreation even more to his liking was afforded by the social circumstances of colonial life. Among the 4,000-strong European community was a large band of wives who, like Margaret, were often bored and neglected. Such opportunities to philander were ones that a man of his character found hard to resist. Like a good many serial philanderers of that era, his success with women seems to have relied on a judicial use of gentlemanly charm, and his undoubted ability to make a woman feel that she was the centre of his universe without resorting to obvious or overt flattery. This approach, combined with a steady stream of gifts and affectionate letters almost always seemed to do the trick. One relationship in particular, with a lady by the name of Anna, may well have resulted in Margaret’s premature departure from Port Arthur.

With his knowledge of the impending Japanese attack, now possibly only months away, he insisted that a town under siege was no place for Margaret and had her pack her things and return to England. In the autumn of 1903 she left Port Arthur for Yokohama, then journeyed to Europe across the Pacific, via San Francisco and New York.¹² Now free to continue his dalliance with Anna unhindered, their affair began to attract attention. Whether this was another relationship of short-term convenience, or the beginning of a much longer term liaison depends very much on how one interprets Reilly’s connections with the Japanese and his own hasty departure from Port Arthur the following year.

His undoubted knowledge of Japanese intentions would later lead to questions being raised about his role in Port Arthur and the allegation that he was in fact a spy in the pay of the Japanese. Authors Winfried Ludecke and Richard Deacon state clearly their view that Reilly was a Japanese spy,¹³ while Robin Bruce Lockhart portrays Reilly as being distinctly anti-Japanese in his account of events.¹⁴ Professor Ian Nish, of the London School of Economics, and author of Causes of the Russo-Japanese War, is therefore right to refer to Reilly’s role as ‘one of the unsolved riddles about the Russo-Japanese War’.¹⁵

The first known and recorded suggestion that Reilly had been a Japanese spy is contained within a US Bureau of Investigation report written by Agent L. Perkins on 3 April 1917.¹⁶ Written while Reilly was living in New York during the First World War, the report refers to information volunteered to the Bureau by one Winfield Proskey, an engineer with the Flint Arms Company, who stated that Capt. Guy Gaunt,¹⁷ the British Naval attaché in New York, had told him that Sidney Reilly had once spied for Japan. Gaunt was certainly in Manchuria at the time the Russo-Japanese War broke out, where he was serving on HMS Vengeance in the summer of 1904.¹⁸ It is, therefore, not unlikely that Gaunt either encountered Reilly while in Manchuria or had heard stories of his alleged spying there.

Although Richard Deacon’s stated belief that Reilly’s Japanese intelligence contact was Col. Akashi Motojiro is not supported by Akashi’s own records,¹⁹ a letter written by Reilly to an unknown correspondent simply referred to as ‘ECF’, on 3 December 1902, does clearly suggest that he did have an interest and knowledge of intelligence matters at this time:

The Manchu’s are finished. It is only a matter of time before China becomes the playground of the great powers. Their intelligence service, such as it is, for all practical purposes simply does not exist. But I should warn you that in this vacuum which is left a new and much more dangerous Secret Service will eventually spring up. Today it is like a sperm in the womb. Tomorrow? Perhaps a fully fledged child.²⁰

Although not stated openly in the letter, the ‘sperm in the womb’ can only mean the Japanese Secret Service, who had a growing network of agents in Manchuria at this time to help them gauge Russian intentions. Britain was also keeping a watching brief on developments in the area through its Military and Naval Intelligence Departments with a view to her future policy. Her first preference would have been an agreement with the Russians to preserve the status quo in the region. Unable to achieve this objective, Britain concluded a treaty with Japan in January 1902, by which she hoped to achieve the next best thing. At the time of the treaty, the Japanese had six capital ships, Russia six, France six and Britain four. Under the treaty, Britain or Japan would come to the other’s aid in the event of one of them being at war with more than one of the other great powers. Should Japan be unable to get the Russians to come to some agreement concerning their ongoing expansionism, the treaty would at least now make it possible for Japan to contemplate war with Russia as a last resort, in the full knowledge that the French would be kept in check by the British.

Understandably, Britain took a greater degree of interest after the treaty and particularly as tensions between the Russians and the Japanese were seen to be heightening. War Office Military Intelligence records confirm that in 1903, ‘the first four officers were sent to Japan as language students’.²¹ The thrust of Britain’s intelligence gathering was therefore through the armed forces, although this is not to discount information picked up by diplomatic posts and newspaper correspondents. Russian espionage files, for example, refer to a Daily Telegraph corres-pondent in Manchuria, a retired lieutenant colonel, Joseph Newman, who appears to have been well connected within the European business community.²² He would, more than likely, have relayed back anything of interest he had heard and could well have come across Reilly during his stint in Manchuria. Whoever Reilly was supplying information to, it was certainly not the Russians. While not expecting to lose any future conflict with Japan, they were certainly sensitive to Japanese efforts to obtain information about Port Arthur and were keen to keep a watchful eye on those suspected of being foreign spies, particularly among the European residents of Port Arthur. Comprehensive records still exist in Moscow, providing a wealth of detail about the numerous agents they themselves were running in Port Arthur and in the region generally.²³ Reilly’s name is nowhere to be seen.

When the inevitable conflict between Russia and Japan broke out into open hostility on 8 February 1904, it was as a result of a surprise Japanese attack against the Russian Pacific fleet at Port Arthur. With no declaration of war prior to the attack, it bore many of the hallmarks that would characterise the assault on the American Pacific fleet at Pearl Harbor some thirty-six years later. Although the attack on Pearl Harbor was carried out in daylight by air and the attack on Port Arthur was at night by torpedo boats, the theory behind both acts of war was the same. The Japanese had calculated that the only possible way they could defeat a larger and theoretically stronger power was by attacking without warning and in so doing striking a blow from which the enemy would have great difficulty recovering.

As a result of superior intelligence, Japan’s Admiral Togo was not only aware of the positions of all Russian ships but was equally aware of the layout of Russian minefields and search-light locations. This enabled the Japanese to move through the minefields unhindered and to emerge from the darkness unseen by Port Arthur’s search lights, which on the night of the attack were mysteriously disabled. Although Togo’s attack succeeded in crippling the Russian Pacific fleet, it was not until 1 January 1905 that the Japanese actually captured the port. Neither side had foreseen the lengthy siege of Port Arthur and the Japanese in particular were not prepared for a winter campaign. Although ultimately victorious, 58,000 Japanese lives were lost in comparison to the 31,000 Russians who perished defending the town.

Credit for Togo’s initial attack on Port Arthur, which was one of the most brilliantly conceived and co-ordinated assaults ever undertaken, was very much the result of the advance intelligence operation which enabled him to access Russian defence plans. How he managed to obtain these has been shrouded in mystery for nearly a century. When the US army, led by Gen. MacArthur, arrived in Japan in August 1945, it set about examining Japanese intelligence records. A large consignment of material was taken away by MacArthur’s intelligence chief, Gen. Willoughby, and sent to Washington for detailed analysis. Students of the Russo- Japanese War hoped that here at last would be revealed the answer to the mystery. Sadly, no hint as to the identity of the agent who procured the plans for Togo was ever found in the records, copies of which now reside in America’s National Archives in Washington DC. As a result, it was widely assumed that the solution to the riddle had been lost or destroyed.

In Moscow’s Military Historical Archives 6,000 miles away, however, a dusty file of intelligence reports finally exposes the Russians’ number-one suspect. The file, not seen by unauthorised eyes before the downfall of Soviet communism, contains a report from April 1904 addressed to ‘His Excellency the Commandant of Port Arthur’ and marked ‘Secret’.²⁴ In it, the conclusions of an in-depth investigation into the theft of harbour defence plans are revealed, and the culprit named as one Ho-Liang-Shung, a Chinese engineer who worked under the Head Marine Architect, Svirsky. Ho-Liang-Shung had a detailed knowledge of the harbour, its fortifications and mine field. He also had access to the harbour defence plans. According to the report, he had prior knowledge of the Japanese attack as early as 26 January 1904. On 23 February and again on 8 March, large sums of money were deposited into his bank account. On 10 April he attempted to leave without an exit permit and was detained by the port gendarme. In spite of this, he managed to escape confinement and was never seen again.

While convinced of Ho’s guilt, the Russians were clearly of the view that he had not acted alone and was very much a minor player in a wider web. The identity of his ‘go-between’, the person to whom he had given the plans and who had paid the money into his bank account, was never established. Intriguingly, some twenty-seven years later, when Margaret Reilly wrote a manu-script about her husband’s life, she referred in passing to a port engineer acquaintance he had known in Port Arthur – ‘Ho-Ling-Chung’.²⁵ While the spellings are at variance, the chances of there being two engineers with such similar names, moving in similar circles, must be viewed as somewhat remote. Bearing in mind the intimate relationship between Ginsburg & Company and the Pacific fleet, it is highly probable that Reilly would have come into regular contact with port and naval officials at all levels. In fact, many of the naval contacts he utilised in later years were initially made during his time in Port Arthur.

Reilly and Ho are further linked by their mutual disappearance, for shortly after Ho’s escape, Reilly too departed. In 1917 Moisei Ginsburg recalled that Reilly had ‘suddenly vanished’, leading the local Russians to conclude that he was a spy.²⁶ Winfried Ludecke and Richard Deacon have both maintained that Reilly concluded the Russians had their suspicions about him after discovering someone associated with East-Asiatic was in the employ of Russian intelligence.²⁷ This theory again finds corroboration in Moscow archives, which reveal that one of Russia’s most valuable espionage finds was a British citizen by the name of Horace Collins who indeed happened to work for the East-Asiatic Company. Collins was born on 12 March 1870 in Hever, Kent.²⁸ His father was a well-to-do farmer, and Horace grew up working with horses, eventually taking up an apprenticeship as a jockey at the nearby Lingfield stables. On completion of his apprenticeship in 1893 he went to the Far East, where he eventually secured a job at the stables of the Japanese Emperor. It was during this period that he learnt to speak Japanese and a Chinese language. Although moderately successful as a jockey, it was not long before he took to business, making the most of his oriental languages and travelling widely on behalf of various trading houses in China, Korea, Japan and eastern Russia.

There is no indication in Russian records as to how Collins was recruited as a spy, although money may well have been a factor. It would seem from the commentary in his file that he was not exactly prospering in business when he was first recruited. From the Russian point of view, he was most useful by virtue of his language abilities and his knowledge of Japan and her people. Accordingly, the Russians were paying him $300 per month plus expenses.²⁹

Whether Reilly’s discovery of the Russian agent was made by chance or through a third party is unknown. However, bearing in mind the suggestion that he was involved in an affair with a woman by the name of Anna, one candidate stands out in particular – Anna Grigoryevna Collins, Horace Collins’ Russian-born wife.³⁰ She not only knew of his work for the Russians, but was also known to be having an affair with an associate of her husband.

Having made a swift exit from Port Arthur, Winfried Ludecke suggests that Reilly headed for Japan in the company of ‘a lady with whom he had been flirting’.³¹ Whether Anna and the lady companion are one and the same is conjecture. If Reilly did go to Japan, he could not have stayed there very long, for in June 1904 we find him in Paris.³² During the brief time he spent in the city he renewed his acquaintance with William Melville, whom he had last seen in 1899, shortly before his hurried departure from London. Reilly’s meeting with Melville is most significant, for within a matter of weeks Melville was to enlist his help in what would later become known as the D’Arcy Affair.

Authors writing about Reilly’s role in the D’Arcy Affair have often relied on Reilly’s own tale of what happened. Other sources lead to a rather different train of events. The background to the affair is succinctly set out in a letter of reminiscence dated 30 April 1919 from E.G. Pretyman MP to Sir Charles Greenway, the chairman of The Anglo-Iranian Oil Company,³³ in which Pretyman recounts his own involvement some fifteen years earlier, as Civil Lord of the Admiralty, in securing the Persian oil concession for Britain, which led indirectly to the founding of the Anglo-Iranian Oil Company:

In 1904 it became obvious to the Board of the Admiralty that petroleum would largely supersede coal as the source of fuel supply to the Navy. It was also clear to us that this would place the British Navy at a great disadvantage, because, whereas we possessed, within the British Isles, the best supply of the best steam coal in the world, a very small fraction of the known oilfields of the world lay within the British Dominions, and even those were situated in very distant and remote regions. Lord Selborne therefore decided to appoint a small Standing Committee to deal with this question and to take any steps they found possible to bring additional sources of petroleum supply under British control. I was appointed Chairman of this Committee and was assisted by Sir Boverton Redwood and the late Sir Henry Gordon Miller, then Mr Gordon Miller, Director of Navy Contracts. In the course of our investigations we learned through Sir Boverton Redwood that the late Mr D’Arcy had secured a valuable concession from the Persian government of the oil rights in southern Persia, and that he was negotiating for a similar concession from the Turkish Government for oil rights in Mesopotamia. We also ascertained that Mr D’Arcy was desirous of disposing of his rights under the Persian Concession to some financial Syndicate with the necessary capital and experience to undertake development operations. We further ascertained that D’Arcy was, at that moment, in the Riviera negotiating for the transfer of his concession to the French Rothschilds. I therefore wrote to Mr D’Arcy explaining to him the Admiralty’s interest in petroleum development and asking him, before parting with the concession to any foreign interests, to give the Admiralty an opportunity of endeavouring to arrange for its acquisition by a British Syndicate.

I further asked him to come and see me on the subject. Mr D’Arcy accepted my invitation and returned from the Riviera to discuss the position with me. As a result of our conversation, the Committee approached the Burmah Oil Company with whom arrangements had already been made for emergency supplies of Naval Oil fuel, and, after investigating the prospects of the Persian Oil Field, they agreed to undertake its development and to form a Syndicate.

D’Arcy had already spent over £150,000 in the search for oil over and above what he had spent in obtaining the concession in the first place. It was clear that he could not continue in this way. He soon found, however, that he was very much in a ‘chicken and egg’ position, as potential backers, including the British government, would have nothing to do with the project until oil was found. Then, in December 1903, there seemed to be hope in that Lord Rothschild, who had heard of D’Arcy’s venture, had expressed the view that it was of ‘great importance’. D’Arcy’s intermediary, Sir Arthur Ellis, met with Lord Rothschild and on 30 December wrote to D’Arcy to inform him that Rothschild would be writing to his cousin Baron Alphonse de Rothschild in Paris. It was indicated to the Rothschilds by Sir Arthur Ellis that £2 million would have to be spent in Persia. A personal meeting was therefore arranged between D’Arcy, who was accompanied by John Fletcher Moulton, and Baron de Rothschild in Cannes. According to the records of the Anglo-Iranian Oil Company, this meeting took place towards the end of February 1904.³⁴

Pretyman’s letter also raises a number of other questions: why, for example, had the British government had such a quick and fundamental change of heart in now wanting to assist D’Arcy? Back in November of the previous year they had shown a distinct lack of enthusiasm for assisting him. Now, three short months later, they had not only a dramatic change of mind but were positively pursuing him to the negotiating table.

It may well be that in December 1903 the government view was that in the absence of any other potential D’Arcy backers they could afford to wait for a sign of the concession’s potential before committing any money. The situation changed dramatically the following month, however, when it seemed not only that D’Arcy had now found potential funding, but that potential funding was sourced abroad and might purchase the concession outright.

In Ace of Spies, Robin Bruce Lockhart repeats one of Reilly’s oft-recited tales of how, at the British Admiralty’s behest, he tracked down D’Arcy and covertly approached him in the south of France. According to Reilly, he boarded de Rothschild’s yacht disguised as a priest and persuaded D’Arcy to break off negotiations and return to London to meet with Pretyman and the Admiralty.³⁵ This story is clearly fantasy on Reilly’s part, for in February 1904 he was thousands of miles away in Port Arthur. However, this should not discredit the theory that the Admiralty was engaged in efforts to entice D’Arcy from the clutches of the Rothschilds.

As D’Arcy and the Rothschilds were making the first tentative moves towards exploratory talks, William Melville mysteriously resigned as head of Special Branch on 1 December 1903. No known reason was given for his sudden departure. His Metropolitan Police Service File would have contained the answer to this puzzle, but unlike those of other Special Branch heads, it is no longer to be found. Had he made too many anarchist enemies, and decided to disappear from view, or had he accepted a lucrative position outside the force? All the signs are that this was a speedy and unplanned departure. Patrick Quinn was appointed to succeed him, and as an indication of the haste involved, was promoted to superintendent without sitting the usual examination, which he would have done well in advance if his promotion had been planned and anticipated.

Where then did Melville go? It seems unlikely that his departure was motivated by a desire to avoid the attentions of anarchists or any other undesirable element, as his name and address continue to appear in the London Post Office Directory from the time of his resignation in 1903 to the time of his death in 1918.³⁶ There is no indication either, from any source, that he set up in business in Britain or abroad. It was not until after his death on 1 February 1918,³⁷ that a clue to this mystery presented itself in the ‘Funerals’ column of The Times on Wednesday 6 February 1918. Under the heading ‘Mr William Melville’, the report referred to his funeral the previous day at St Mary’s Cemetery in Kensal Green, and went on to state that he was ‘formerly a superintendent of Special Police at Scotland Yard, and recently of the Military Intelligence Department of the War Office’. Among those listed as attending the funeral was one Lt Curtis Bennett RN, who author Nicholas Hiley³⁸ believed was a naval intelligence officer. This led Hiley to speculate that Melville had been recruited by NID, the Naval Intelligence Division, in 1903 and that he later joined MI5 during the First World War, as stated by The Times report.³⁹ Research by this author has confirmed that Henry Curtis Bennett was indeed an intelligence officer, but was an MI5 officer with no connection to the Naval Intelligence Division.⁴⁰

It was not, however, until November 1997, when MI5 released material on Melville to the Public Record Office, that Hiley’s theories were finally corroborated, if only in part.⁴¹ It revealed that ‘W. Melville, MVO, MBE, was employed with effect from 1 December 1903’ by the War Office.⁴² It further indicated that he initially worked in the second auxiliary of the Military Intelligence Investigation Branch, which was later incorporated into MI5 when the new service was created in 1909. Those working in this branch are described as ‘shadowing staff’, whose responsibility it was to ‘watch and report’ on designated persons.

We know from contemporary records that the Admiralty and the War Office worked closely together on a number of intelligence matters, and shared the cost of such operations.⁴³ Had the Admiralty decided in December 1903 that a close eye should be kept on developments between D’Arcy and a possible French source of funding? It is highly unlikely that Pretyman would have written such a letter to D’Arcy completely out of the blue, particularly bearing in mind that there does not appear to have been any contact between them since the rejection of D’Arcy’s approach to the Admiralty the previous November. It is therefore probable that some reconnaissance work took place prior to Pretyman’s approach. The impression given by Pretyman in his letter to Sir Charles Greenway is significant, in that it states, ‘we further ascertained that Mr D’Arcy was, at that moment, in the Riviera negotiating for the transfer of his concession to the French Rothschilds’. This very much suggests that such information had come to them literally at a moment’s notice, necessitating prompt action.

D’Arcy was staying at the Grand Hotel while the Rothschild negotiations were taking place, and there would seem little point in the kind of approach featured in Reilly’s story. Where better to approach D’Arcy than at his own hotel, and who better to do so than a fellow guest?

Le Littoral very helpfully lists comings and goings during the period that Alphonse de Rothschild and William Knox D’Arcy were in Cannes. Of the many British visitors passing through, one particular couple stand out – Mr and Mrs William Melville, who stayed at the Grand Hotel throughout D’Arcy’s stay there.⁴⁴

Melville was no stranger to France,⁴⁵ and was a fluent French speaker.⁴⁶ Whatever transpired during the Melville’s ‘holiday’ in Cannes, D’Arcy was soon in receipt of Pretyman’s letter and on his way back to London to meet with the Admiralty’s Oil Committee, who approached Burmah Oil to undertake the formation of a British syndicate.

This process was not, however, quite as speedy and seamless as Pretyman implied fifteen years after the event. In fact, negotiations between D’Arcy and the Burmah Group did not begin for another six months. In the intervening period D’Arcy was experiencing more difficulties with Lloyds Bank, who were pressing him to put forward the concession itself as security against his overdraft, something D’Arcy fiercely resisted. As a result, D’Arcy once again turned to Alphonse de Rothschild, although this time he did not negotiate directly, but sent John Fletcher Moulton to Cannes as his representative.⁴⁷ Melville, by virtue of the fact that he was now a known quantity so far as Fletcher Moulton was concerned, perhaps felt that his presence could compromise the situation, and appears at this point to have enlisted Reilly’s assistance.

Back in February, the threat that the oil concession might slip into foreign hands had been successfully averted. Now, three short months later, the possibility was again in contention, and it was deemed essential from the Admiralty’s point of view that the renewed talks be stopped dead in their tracks. Unable to again play the same hand that had worked so well before, namely to appeal to D’Arcy’s patriotism, other means of stalling the negotiations had now to be found.

One of the surest ways of scuttling the discussions would have been to sow seeds of doubt in de Rothschild’s mind concerning the chances of oil being found in the location D’Arcy was drilling. By the time the talks commenced in June, Fletcher Moulton was already complaining that de Rothschild’s terms were now somewhat less favourable than when they had last met.⁴⁸ His despondence was even more evident when, on 24 June, he cryptically referred to an ‘unhelpful outside interest’ whose influence had led to de Rothschild questioning the location of drilling.⁴⁹ Although the ‘unhelpful outside interest’ is never actually identified by Fletcher Moulton, it seems clear that there is a distinct connection between this involvement and de Rothschild’s acquisition of a report that seems to have been the source of his misgivings.

Meanwhile, some 30km down the coast, where ‘Mr and Mrs Reilly’ were guests at the Continental Hotel in St Raphael, Reilly wrote a letter dated 30 June, in which he referred to ‘a most useful report’ that had helped him ‘turn the tide’.⁵⁰ The tide had indeed turned for Fletcher Moulton, who apparently found that there was little he could do to dispel de Rothschild’s misgivings or to reassure him. Their discussions finally broke down during the first week of July 1904.⁵¹ On cabling Knox D’Arcy in London with the regrettable news, Fletcher Moulton was surprised to find that his friend was not at all downcast by the news. On the contrary, out of the blue, the Admiralty-sponsored talks with Burmah Oil were suddenly back on the agenda with a renewed sense of urgency.⁵² An agreement was finally signed on 20 May 1905 and, almost three years later, oil was struck at Masjid-i-Suleiman. In April 1909 the Anglo-Persian Oil Company was founded, today known as BP Amoco. Apart from making D’Arcy and his syndicate rich beyond their wildest expectations, the find also guaranteed the Royal Navy a substantial and dependable source of oil.

The Reillys appear to have stayed on the Côte d’Azur for the remainder of the summer. Apart from the mystery report referred to by both Reilly and Fletcher Moulton, a secondary puzzle in this episode concerns the identity of ‘Mrs Reilly’. If, as will later become evident, there is a strong case for believing that Reilly bigamously remarried after the Russo-Japanese War, we can confidently discount the possibility that the ‘Mrs Reilly’ at the Continental was in fact Margaret, as she herself declared that the first occasion on which she saw her husband after their parting in Port Arthur was Christmas 1904.⁵³

Following his departure from the Continental Hotel, Reilly returned to Brussels.⁵⁴ In the new year he moved on to St Petersburg, where he arrived alone on 28 January 1905, checking into room 93 at the Hotel Europe on Nevsky Prospect.⁵⁵ If he had remarried, where was the new Mrs Reilly, and why did he go to such extraordinary lengths to successfully keep the marriage a secret?