Sometime during the period 1917-1920, a secret fund of $100,000 was deposited in a local bank to the personal credit of the Director of Naval Intelligence.

It is probable that Captain Roger Wells was the first custodian of this fund, and it is definitely known that Admiral Niblack was a custodian. This fund was expendable at the discretion of the Director of Naval Intelligence and was not accountable to Congress or the Comptroller General. The only record kept was in the stubs of the checkbook, and the unexpended balance was transferred to the personal account of each succeeding Director of Naval Intelligence. It is my recollection that the fund was made available by Secretary of the Treasury McAdoo at the request of President Wilson.

The Research Desk of the Code and Signal Section (Naval Communications) was the chief and almost sole beneficiary of this “Slush Fund”. To my personal knowledge, the following expenditures were made from this fund:

(1) Special “bonuses” and other expenses in connection with photographing the Japanese Naval Operations Code.

(2) Compensation of Dr. Haworth and Mrs. Haworth, who were translating our photographs of the Japanese Naval Code from-1922 to 1927, inclusive, and translating decrypted messages from 1928 to 1931.

(3) Purchase of about 40 Japanese typewriters and cost of making special dies for the type heads.

(4) Purchase of Japanese dictionaries, grammars, yearbooks, etc.

(5) Repair of Japanese typewriters. The unexpended balance of this fund, amounting to about $65,000, was turned in to the Treasurer of the United States in June 1931, in connection with the retirement of Captain H.A. Balridge, U.S.N., the Director of Naval intelligence (DNI). Captain William Baggaley, had been acting as D.N.I. Commander J.W. McClaren (OP-20-G) got word of the proposal somehow and reported it by a memorandum to the Director of Naval Communications (DNC), dated 8 June 1931, stating in part: “If Captain Baggaley is allowed to turn this fund back simply because of his own personal fear in handling it, I feel; that it will be a great mistake, and it is a safe bet that one year hence when he leaves, his reliefs for many years to come will bemoan the fact that their hands have been tied by lack of funds to prosecute urgent secret tasks.”

Captain Hopper, in turn, sent the DNA a memorandum of protest, dated 10 June

1931, stating in part:

“It was through expenditures from this special fund that our radio intelligence intercept activities were begun at a time when the necessary funds could not be obtained elsewhere.  All of the special machines used in this work were paid for and have been kept in repair through this source.  In addition to the above, the Research Section has from time to time found it necessary to call upon this fund to defray expense for essential secret intelligence activities.  Furthermore, in the event of a war this fund should be an excellent back long upon which to depend for preliminary intelligence activities until necessary additional appropriations could be obtained.”

Commander McClaren also left the following note in his own handwriting:
“This was followed by personal appeal by OP-20  and 20-G to OP 16 and an offer on their part to go privately to members of the Naval Affairs Committee and obtain authority to retain the secret fund.  Above offer rejected.  Then 20 and 20-G went to CNO [Chief of Naval Operations] and asked him to direct that fund be retained, which he intended to do but before he took action 16 prodded by 16-A got Secretary of the Navy to sign an order returning sum to Treasury.

The teamwork which existed between Navy Communications and Naval Intelligence from 1922 to June 1931 and our reliance on O.N.I [Office of Naval Intelligence] funds should be particularly noted.

By L. F. Safford, Captain, USN