Salvage and Liquidation, 1945
With the end of World War II in 1945, the nation breathed a sigh of relief and looked forward to a return to normalcy. To begin the transition of becoming a nation at peace, President Harry S. Truman and Congress ordered the demobilization of wartime agencies, like the Office of Strategic Services (OSS ) — the forerunner to the CIA. On September 20, 1945 President Harry Truman signed Executive Order 9621, dissolving the OSS as of October 1. Harried OSS officers were given just 10 days to save whatever they could of the worldwide foreign intelligence agency they had built. They rose to the challenge, and with the help of a key ally in the War Department, preserved vital capabilities for the soon-to-be created Central Intelligence Agency.
Farewell to the OSS
The White House staffers who drafted Executive Order 9621 made sure it gave the OSS Research and Analysis (R&A) Branch to the State Department as a “going concern” while directing everything else to the War Department for “salvage and liquidation.” The Executive Order thus terminated OSS and let the Secretary of War liquidate OSS activities "whenever he deems it compatible with the national interest."
The same day the order was signed, Truman sent a letter of appreciation to OSS's outgoing chief, General William Donovan, softening the bad news with a hint that the War Department could preserve certain OSS components providing "services of a military nature the need for which will continue for some time."
And with just a signature, OSS was through. But what would survive the aftermath of OSS’s dismantling? The President probably gave little thought to those necessary "services of a military nature" that would somehow continue under War Department auspices.
What Would Follow OSS?
Truman shared the widespread feeling that the government needed better intelligence, although he provided little positive guidance on the matter. He commented to Budget Director Harold Smith in September 1945 that he had in mind "a different kind of intelligence service from what this country has had in the past," a "broad intelligence service attached to the President's office."
In the meantime, Donovan fumed about the President's decision to White House Bureau of the Budget (Budget Bureau) staffers who met with him on September 22 to arrange the details of the OSS's dissolution. An oversight in the drafting of EO 9621 had left the originally proposed termination date of October 1 unchanged in the final signed version, and now Donovan had less than two weeks to dismantle his sprawling agency.
One official of the Budget Bureau suggested that the War Department might ease the transition by keeping its portion of OSS functioning "for the time being," perhaps even with Donovan in charge. Budget Bureau staffers quickly abandoned the idea of keeping Donovan on even temporarily, but promised to discuss OSS's situation with Assistant Secretary of War John J. McCloy on September 24.
McCloy Takes the Helm
Two days later, McCloy stepped into the breach. He glimpsed an opportunity to save OSS components as the core of a peacetime intelligence service. A friend of Donovan's, McCloy had long promoted an improved national intelligence capability. He interpreted the President's directive as broadly as possible by ordering OSS's Deputy Director for Intelligence, Brig. Gen. John Magruder to preserve his Secret Intelligence (SI) and Counterespionage (X-2) Branches "as a going operation" in a new office that McCloy dubbed the "Strategic Services Unit" (SSU):
"This assignment of the OSS activities...is a method of carrying out the desire of the President, as indicated by representatives of the Bureau of the Budget, that these facilities of OSS be examined over the next three months with a view to determining their appropriate disposition. Obviously, this will demand close liaison with the Bureau of the Budget, the State Department, and other agencies of the War Department, to insure that the facilities and assets of OSS are preserved for any possible future use....The situation is one in which the facilities of an organization, normally shrinking in size as a result of the end of fighting, must be preserved so far as potentially of future usefulness to the country."
The following day, the new Secretary of War, Robert P. Patterson, confirmed this directive and implicitly endorsed McCloy's interpretation, formally ordering Magruder to "preserve as a unit such of these functions and facilities as are valuable for permanent peacetime purposes." With this order, Patterson postponed indefinitely any assimilation of OSS's records and personnel into the War Department's Military Intelligence Division.
Getting Congress On Board
General Magruder soon had to explain this unorthodox arrangement to sharp-eyed Congressmen and staff. Rep. Clarence Cannon, chairman of the House Appropriations Committee, asked the general on October 2 about the OSS contingents sent to the State and War Departments and the plans for disposing of OSS's unspent funds (roughly $4.5 million). Magruder explained that he did not quite know what State would do with R&A; when Cannon asked about the War Department's contingent, the general read aloud from the Secretary of War's order to preserve OSS's more valuable functions "as a unit." Two weeks later, staffers from the House Military Affairs Committee asked why the War Department suddenly needed both SSU and the G-2:
"General Magruder explained that he had no orders to liquidate OSS (other than, of course, those functions without any peacetime significance) and that only the Assistant Secretary of War [McCloy] could explain why OSS had been absorbed into the War Department on the basis indicated. He said he felt, however,...that the objective was to retain SSU intact until the Secretary of State had surveyed the intelligence field and made recommendations to the President."
Committee staff implicitly conceded that the arrangement made sense, but hinted that both SSU and the remnant of R&A in the State Department ought to be "considerably reduced in size."
OSS was gone, but with this tacit recognition from Congress, the foreign stations and assets of OSS would survive long enough to form the nucleus of the Central Intelligence Agency's operational arm two years later.
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