NO FOREIGN OISSEM KGB EXPLOITATION OF HEINZ FELFE Successful KGB Penetration of a Western Intelligence Service NAZI WAR CRIMES DISCLOSURE ACT :PGlassified and Approved for,Release gy Ma Central Intelligence Agency EXEMPTIONS Section 3(b) Date; ,2 (2)(A) Privacy (2)(B) Methods/Sources EY (2)(G) Foreign Relations ri /3 19f 72 3 NO FOREIGN DiSSEM TABLE OF CONTENTS Page I. Introduction and Summary 1 Soviet Operations Against Gehlen Organization in the Early Post-War Years 15 a. Background Information on Felfe 17 b. Background Information on Clemens 20 c. Soviet Recruitment of Felfe and Clemens 21 d. Alternate Versions of Recruitment by KGB and Hiring by Gehlen Organization - 26 e. Early Stages of KGB Operation--the BALTHASAR Deception 29 III. Operations of the Early 1950s 32 a. Efforts to Discredit the Gehlen Organization 33 b. Felfe Settles In--the LENA Deception 42 IV. KGB Work in West Germany as a Sovereign Country: 1956-1961 50 a. Targeting of CIA, Provocation, Tactical Deception S3 b. Support of Soviet Policy and Political Deception -62 c. Methods of Communication 65 d. New Directions? 68 V. Investigation and Arrest VI. The Aftermath 89 ANNEXES A. The HACXE Story 92 B. LILLI MARLEN Case 96 C. The Sokolov Case 101 D. ZUVERSICHT Case 112 E. MERKATOR Case 115 F. Glossary of German Words and Abbreviations 117 SEGfid NO FOREIGN DISSEM -1- I. Introduction and Summary What happens when the KGB has a high level pene- tration of a Western intelligence service? How does the KGB exploit the voluminous information received on enemy operations, while at the same time protecting the security of its source? More importantly, does the KGB handling of such an agent leave tell-tale signs which would permit an alert and knowledgeable Western counterintelligence officer to surmise the existence of such a penetration? It would be presumptious to generalize on the basis of one case, but study of the KGB handling — of Heinz Felfe may help provide answers to these questions. Of the identified KGB penetrations of Western intelligence and security services, Heinz Felfe was certainly one of the most successful. Felfe was an officer of the West German Foreign Intelligence Service (BND) for ten years, six of them as deputy chief of the section responsible among other things for countering Soviet espionage. He was a dedicated Soviet agent _ _ throughout this period, and remained loyal to the Soviets even after his arrest in November 1961. He was detected as a result of a lead provided by a CIA-run penetration of the Polish Intelligence Service (UB). ........... For convenience, the term KGB will be used throughout this paper, even though during part of the period covered the proper terminology for the State Security Service was MGB or MVD. ** From 1947 to 1956, when it had no legal status, this was known as the Gehlen Organization. In 1956, after West Germany had regained its sovereignty, it became the BND which is the German abbreviation for Federal Intelligence Service. For convenience and simplicity it is frequently referred to as the BND even when the earlier period is meant. SECRET NO FOREIGN DISSEM NO FOREIGN DISSEM -2- Felfe was more than a simple penetration agent; he became, in effect, a consultant to the KGB on many of its operations in West Germany. Through Felfe, the Soviets pursued three objectives: a. To protect the security of Soviet installations and personnel in West Germany and in East Germany, and to detect Western operations inside the Soviet Union, To this end, the KGB ran deception operations designed to expand Felfes access to information not only from his own service, but also from other West German and Allied services including CIA. b. To confuse, disorient and discredit the West German foreign intelligence service. The aim was not _ only to penetrate the service, but to manipulate it to serve Soviet interests. c. To collect political intelligence on West Germany. This goal, and the equally important objective of political disinformation, assumed increasing importance as the case progressed and may have ultimately become_ _ the most important in Soviet eyes, as a support to Soviet foreign policy objectives. The reader will not find here a complete history of the Felfe case; that would require a much larger volume. The broad lines of the story are here, and one chapter in particular is devoted primarily to background information, presenting the dramatis personae. It describes how the KGB recruited first Hans Clemens, and then, thru Clemens, Felfe. They had been colleagues in Nazi intelligence during the war, motivated after the war by revenge against the Americans, money, and a desire to be on what they considered the most powerful side. But this is essentially a selective and interpretive account, for the purpose of illustrating KGB methods of handling and supporting a well-placed staff penetration of a Western service. The lessons to be learned lie in the various , dlad NO FORM DISSW -3- and diversionary operations run by the KGB to build up Felfes reputation in the BND, expand his access, protect his security, and create an illusion that the German service was effectively fulfilling its CE mission, while the Soviets were generally ineffective. There are many ways by which Felfe might have been unmasked earlier than he was. Even a thorough namecheck might have done the trick. He could also have been caught earlier if more weipt had been given to analytical evidence which clearly indicated something was amiss, rather than waiting to be spurred to action by report from our own sensitive penetration source. Indications of Soviet penetration of the BND were to be found in the deception and diversionary operations run by the KGB for the express purpose of supporting or protecting Felfe. Although support and protection of penetration agents In Western services is not the only reason the Soviets run deception and diversionary operations, it is clearly one of the principal reasons for such operations. Study of the Felfe case suggests that when a number of Soviet deception and diversionary operations are concentrated in one area, or against one service, these operations need to be carefully analyzed to determine whether they may indicate Soviet penetration in that area or that. • service. Many examples of deception and diversionary operations are discussed in detail in this study; the most important are summarized in the following paragraphs. The first KGB deception operation in support of Felfe was the "BALTHASAR:taSe: As7f4f.,0_0e_gp:WWI: The converse is not necessarily true, i.e. the absence of deception and diversionary operations does not necessarily indicate an absence of penetration. fiO FOREIGN DISSEM -4- at the time, BALTHASAR was one of its better positive intelligence operations, producing information on Soviet mining of uranium in East Germany and its shipment to the USSR. The agent BALTHASAR was a wartime friend of Clemens who had re-initiated contact with him and then allowed himself to be recruited by Clement for the BND. Actually, BALTHASAR was a KGB agent from the beginning. The KGB initiated the operation to provide Felfes co-conspirator, Clemens, with an official reason for repeated trips to West Berlin (to meet BALTHASAR), from where he could easily cross to East Berlin to meet with his and Felfes KGB case officer. Another deception operation, the so-called "LENA" Case was the most important single contribution to Felfes career as a West German intelligence officer, and probably also to his career as a Soviet agent. It gave him status and stature within the BND, and maneuverability as a Soviet agent. It was the vehicle for many gambits to broaden Felfes access to collect information, especially political information, and sometimes to disseminate disinformation. LENA was the BND cryptonym for an East German t political functionary and publisher. He travelled frequently to West Germany, where he was well received in certain West German socialist circles as an apparently independent, outspoken East German. His role as a BND "-- agent, doubled by the KGB, goes back to the early fifties." But in January 1954, shortly after Felfes assignment to the BND Headquarters CE Group, LENA suddenly turned from what had been (from the German point of view) a positive intelligence operation into a CE Case. LENA reported to the BND that he had been intordnced to a KGB officer and that after a flurry of meetings he had been formally recruited by the Sovlets and immediately assigned the task of creating a net of agents to produce information on the Wes; German Foreign Office and the Chancellors Office. The SECREE N FOREIGN DISSEM -5- Soviet plan, as related by LENA, was highly ambitious. LENA was to be the "German net director," to recruit two principal agents, a political advisor and spotter, several support agents, and to provide names of potential penetration agents. As a developing CE case, handling of LENA was then transferred to the CE Group, where the newly arrived Felfe became the Headquarters case officer. His assignment to this case was probably not accidental; Felfes immediate superior at the time was almost certainly another KGB penetration of the BND. With KGB assistance, LENA developed rapidly into the BNDs most important CE Case, and it made Felfes reputation as an authority on Soviet counterespionage., LENAs talkative KGB case officers revealed infor- _matTon - Edi;other Soviet operations in West Germany, compromising several bona fide Soviet and East German \ agents in the process. LENA was such "an I—intelligent-- man" that his KGB case officers ostensibly enjoyed talking politics with him, and these long conversations reVealed occasional glimpses of the "true" Soviet policy on Germany. On the iurfice,— LENAs operation to penetrate the KGB on behalf of the BND was far more successful than the Soviet operation using LENA to penetrate the Bonn Government.