KEY POINTS:
At The height of the Cold War in the 1950s, New Zealand found itself playing an unwelcome part in one of the more sensational episodes of that paranoid period.
Two Russian agents, one of whom had spirited the secret plans for the first atomic bomb out of Los
Alamos, obtained New Zealand passports and secreted themselves in England as the nerve centre of the Portland naval spy ring.
The arrest of the couple - whose New Zealand passports named them as Peter Kroger, of Gisborne, and his Canadian-born wife, Helen, detonated a series of espionage scandals which shook the British Government.
For more than 25 years, a bespectacled Auckland-born diplomat called Paddy Costello has been fingered as a culprit in the affair, accused of issuing the Krogers' passports.
The charge fitted the whisper campaign which had swirled around Costello since the 1930s. Costello, the British believed, was a communist and Russian agent.
History has damned the Auckland Grammar old boy as a traitor but a book by James McNeish seeks to destroy the myth. In the smoke and mirrors world of spooks, it is difficult to prove the negative - that someone is not a spy. McNeish, however, has dismantled some of the main elements of the charge against Costello.
Most importantly, he has uncovered documents which clear Costello over the Kroger passport episode.
Peter Kroger (real name Cohen) had written to New Zealand's representatives in Paris in April 1954 seeking a New Zealand passport for himself and his wife. A heart condition, he wrote from Austria, prevented him from travelling to the office to apply in person.
His application form was accompanied by fake documents that included birth and marriage certificates.
While Costello, first secretary in Paris, has been accused for decades of issuing the passports, McNeish reveals that Ministry of Foreign Affairs archives show he was not involved. A report dated February 1961 says that handwriting shows that the application was handled by the head of the mission, the late Jean McKenzie, who issued the passports in all innocence. The documents which had deceived her and her staff, as an official investigation would later state, "could have been used with success at any passport office within or outside New Zealand". McNeish said New Zealand's involvement was a cock-up, not a Costello-linked conspiracy.
Alas, espionage is not that clear-cut. The Security Intelligence Service told McNeish: "Insofar as the issue of passports to the Krogers is concerned, an investigation was conducted in New Zealand and overseas; the result was inconclusive."
The service also alleges that there was a link between the Russian intelligence service and Costello. "That such a relationship existed is substantiated by other records held by the NZSIS which are unable to be released at this stage," says the SIS.
Curiously, the service's statement about the Kroger allegations somewhat contradicts former security service head Sir William Gilbert, who wrote for the Herald in 1981 that the accusations were incorrect - although he made it plain that the British intelligence agencies held concerns.
The Sis stance echoes what has been publicly said about Costello since 1981 when he was outed in a book called Their Trade is Treachery, by journalist Chapman Pincher, who relied on the evidence of self-confessed spy Anthony Blunt who said Costello "might have been recruited as a spy".
In 1999, Costello was named by Cambridge University historian Christopher Andrew, co-author of the KGB expose The Mitrokhin Archives, as one of the KGB's most important spys early in the Cold War. Andrew said the agency's Paris bureau considered Costello one of its top-10 assets.
Last month, Graeme Hunt's book Spies and Revolutionaries condemned him as the most important New Zealand spy recruited by the Soviets.
McNeish is unmoved by the books' allegations and unwilling to accept the SIS line that we should trust their conclusions.
Drawing from a rich source of documents - official papers and Costello's private collection of letters and diaries, as well as interviews with people who knew the father of five - McNeish is convinced Costello is in the clear: "The fact is that wherever one burrows in the Costello fabric, the arsenic of treachery is not there."
The stench around the skilled linguist who spoke nine languages, including Russian, saw him lose his job in Paris in 1954 when the British made it clear to New Zealand they would not trust him any more. The British accusations surfaced during Costello's tenure in the short-lived Moscow mission from 1944 to 1950, but at that time were rejected by Wellington.
His work in Moscow, McNeish writes, was distinguished. He was sent to Poland in 1945 where he penned one of the earliest Allied reports of the holocaust. In 1947, he drew on clues in the Russian press and from speeches to conclude that the USSR had developed an atomic bomb - the first official warning to the West.
Costello hardly endeared himself to the straight-laced Western powers, gleefully embracing Russian life, cavorting with the literati and soaking up the language.
But the roots of the suspicions about him can be traced back earlier. After studying at Auckland University, Costello won a scholarship to Cambridge, leaving New Zealand in 1932. In the pre-war years, he flirted with communism and joined the party briefly.
His marriage in 1935 delivered those who distrusted him further cause for suspicion: his Eastern European wife, Bella Lerner, was a strident party follower.
His fate, in British eyes at least, was sealed with an incident at the University College of the South West in Exeter, where he lectured in classics. One of his senior students, Hubert Fyrth, was charged in May 1940 under the Official Secrets Act for passing naval secrets to a leftist newspaper. The "secret" was a decree banning distribution of the newspaper among the troops in France.
McNeish writes that Fyrth came to see Costello during the proceedings, seeking his advice. "This was the first I knew of it," McNeish quotes Costello as saying. This explanation was later accepted by New Zealand authorities - Costello went on to work as an intelligence officer for Major-General Bernard Freyberg and to serve as a diplomat - but he was not believed by his university bosses and lost his job.
Although Costello was never charged, McNeish concludes that it was his association with Fyrth which dogged him. "He was never interrogated or questioned," writes McNeish. "The only blot on his record that had any basis in fact was the red and apparently still living herring of what MI5 called his 'pre-war affiliations'. This referred, one is left to assume, to his accidental and innocuous association with the student Fyrth at Exeter."
McNeish's book shows that Costello was a binge drinker (a trip to Auckland in 1950 ended in disgrace in police custody) and associated with people suspected of having KGB links even when he knew he was under surveillance.
"He is a gift to intelligence agencies who predicate guilt 'by association' [with alleged agents, communists, radicals] and, lacking any real evidence, use the plot to discredit him," writes McNeish. Forced out of his diplomatic post in 1954, Costello took his family to Manchester where he became a professor of Russian. He died in 1964 at 52. Since then his reputation has been tarnished.
"This is not a book about spying," says McNeish. "It is the biography of a fascinating and principled New Zealander who has been attacked by a generation of spy-hunters who make a profession, on flimsy grounds, of libelling the dead."
* The Sixth Man - the Extraordinary Life of Paddy Costello, by James McNeish. Random House, $34.99
