America’s entry into the war in December 1941 provoked new thinking about the place and role of COI. Donovan and his new office—with its $10 million budget, 600 staffers, and its charismatic director—had provoked hostility from the FBI, the G-2, and various war agencies. The new Joint Chiefs of Staff (JCS) initially shared this distrust, regarding Donovan, a civilian, as an interloper—but one they might be able to control and utilize if COI could be placed under JCS control. Surprisingly, Donovan himself, by now, was inclined to agree. Working with the Secretary of the JCS, Brig. Gen. Walter B. Smith, Donovan devised a plan to bring COI under the JCS in a way that would preserve the office’s autonomy while winning it access to military support and resources.
President Roosevelt endorsed the idea of moving COI to the Joint Chiefs. The President, however, wanted to keep COI’s Foreign Information Service (which conducted radio broadcasting) out of military hands. Thus he split the “black” and “white” propaganda missions, giving FIS the officially attributable side of the business—and half of COI’s permanent staff—and sent it to the new Office of War Information. The remainder of COI then became the Office of Strategic Services (OSS) on 13 June 1942. The change of name to OSS marked the loss of the “white” propaganda mission, but it also fulfilled Donovan’s wish for a title that reflected his sense of the “strategic” importance of intelligence and clandestine operations in modern war.
A month later, OSS’s institutional rivals delivered another blow to Donovan’s aspirations for the new outfit. The Department of State and the armed services arranged a Presidential decree that effectively banned OSS and several other agencies from acquiring and decoding the war’s most important intelligence source: intercepted Axis communications. Donovan protested, but his complaints fell on deaf ears. The result was that OSS had no access to intercepts on Japan (codenamed MAGIC) and could read only certain types of German intercepts (called ULTRA by the Allies). Other edicts also limited OSS’s scope and effectiveness. The FBI, G-2 and ONI, for instance, stood together to protect their monopoly on domestic counterintelligence work. OSS eventually developed a capable counterintelligence apparatus of its own overseas—the X-2 Branch—but it had no authority to operate in the Western Hemisphere, which was reserved for the FBI and Nelson Rockefeller’s office of the Coordinator of Inter-American Affairs.
OSS expanded in 1942 into full-fledged operations abroad. Donovan sent units to every theater of war that would have them. His can-do approach had already impressed the State Department, which in 1941 had desperately needed men to serve as intelligence officers in French North Africa. Donovan’s COI sent a dozen officers to work as "vice consuls" in several North African ports, where they established networks and acquired information to guide the Allied landings (Operation TORCH) in November 1942. The success of TORCH won OSS much needed praise and supporters in Washington. Unfortunately, General Douglas MacArthur in the South Pacific and Admiral Chester Nimitz in the Central Pacific saw little use for OSS, and the office was thus kept from contributing to the main American campaigns against Imperial Japan. Nonetheless, Donovan forged ahead and hoped for the best. Utilizing military cover for the most part, but with some officers under diplomatic and non-official cover, OSS began to build a world-wide clandestine capability.
This worldwide reach benefited from close OSS contacts with British intelligence services. The British had much to teach their American pupils when COI opened its London office in November 1941. Both sides gained from the partnership. OSS needed information, training, and experience, all of which the British organizations could provide. The British good-naturedly envied the relative wealth of resources seemingly at the command of OSS and other American agencies and hoped to share in that bounty to expand their own operations against the Axis. Despite a mutual desire to cooperate, however, relative harmony between OSS and its British counterparts took time to achieve.
The slow maturing of inter-Allied cooperation had several causes. British intelligence services had their own operations and plans to protect and feared that working too closely with the inexperienced Americans would jeopardize the safety of their operatives in occupied Europe. This British caution kept the Americans in the awkward status of junior partners for much of the war, particularly during the planning for covert action in support of the D-Day landings in Normandy in 1944. For their part, OSS officers worried about making their new agency dependent on even a friendly foreign intelligence service. Conflicting policy goals occasionally hampered liaison with the British services in Asia. American diplomacy quietly frowned on British imperialism, and some OSS officers informally opposed British moves they viewed as efforts to expand the Empire. Despite these obstacles, however, the liaison relationship gradually grew closer as shared sacrifices and common goals forced officers in the field and in their respective headquarters to resolve their differences.
At its peak in late 1944, OSS employed almost 13,000 men and women. In relative terms, it was a little smaller than a US Army infantry division or a war agency like the Office of Price Administration, which governed prices for many commodities and products in the civilian economy. General Donovan employed thousands of officers and enlisted men seconded from the armed services, and he also found military slots for many of the people who came to OSS as civilians. US Army (and Army Air Forces) personnel comprised about two-thirds of its strength, with civilians from all walks of life making up another quarter; the remainder were from the Navy, Marines, or Coast Guard. About 7,500 OSS employees served overseas, and about 4,500 were women (with 900 of them serving in overseas postings). In Fiscal Year 1945, the office spent $43 million, bringing its total spending over its four-year life to around $135 million (almost $1.1 billion in today’s dollars).