How MI5 caught a chill

The revelations of David Shayler have left the security service even more vulnerable to the demands of reformers

Stephen Lander, a discreet, quietly spoken bureaucrat, has occupied the director-general's office at MI5 for only 20 months, but he has already been taught a bitter lesson about the crucial significance of good intelligence.

On Saturday evening a week ago, the duty officer at MI5's riverside headquarters on Millbank would have phoned through the news that the Mail on Sunday was publishing four pages of revelations about the agency by a man called David Shayler, whose name may well have rung a bell with Lander since Shayler was on the payroll until March. If Lander felt a sinking feeling, it was because MI5 did not know what was about to hit them.

The headline revelations that files were kept on Peter Mandelson and the Home Secretary Jack Straw - now the political head of MI5 - until 1992 promised to lead to a flurry of the most damaging allegations to hit the security service since Peter Wright went public in 1987 with claims of an MI5 plot to overthrow Harold Wilson in the 1970s.

The difference was MI5 knew Wright was about to publish Spycatcher and was able to take out an injunction against the book (albeit only temporarily). In Shayler's case, there was no forewarning. "MI5 had heard rumours that a former employee was touting a book around London but they thought it was a woman," claims Rupert Allason, the former MP who has written extensively about the intelligence services. "I can tell you they are absolutely devastated by this. It's much worse than Spycatcher."

Yesterday the Treasury Solicitor succeeded in getting an injunction to prevent another round of revelations, but the fall-out may still have a profound impact on MI5's future.

Lander has agreed to reveal for the first time how many files it keeps on individuals and organisations. Shayler speaks of one million. Lander says privately that files on individuals are in the low hundreds of thousands. But that is still a large number - nearly one in 100 of the adult population - and the issue of an internal intelligence agency keeping files on individual citizens is to be raised with the Security Service Commissioner and in Parliament.

THESE GRUDGING concessions were made to calm MI5's critics in high places, and by the end of the week they seemed to be working. But MI5 is still a lot more vulnerable to the reformers than it was 10 days ago, and much of the hard work by Lander and his predecessor, Dame Stella Rimmington, in Whitehall has been undone.

The principal accusation made by Shayler, who joined M15 in 1991, was that the era of gin-swilling bowler hats obsessed with "reds under the beds" is not a thing of the past. This contradicted the message, spread assiduously since Rimmington's Dimbleby lecture three years ago in the first public appearance by a serving director-general of MI5, that the old Cold War image was to go and MI5 was to appear more open.

Beginning in 1992, we were told, MI5 had initiated a series of internal changes aimed at reducing the monitoring of so-called "subversives" and combat- ing the more pressing threat of Irish and international terrorism. Last year, the government added organised crime to MI5's remit, inviting it to work in tandem with police forces investigating drug traffickers, money launderers and the Russian mafia. When, earlier this year Lander authorised adverts in the Guardian and other national newspapers inviting people to apply for posts in MI5, the service was inundated with applicants and its transformation seemed to be proceeding smoothly.

Not so. Last week Jack Straw, whose files fingered him as a student subversive, had to be appeased, and Scotland Yard - once the old enemy - was given the all-clear to investigate Shayler for a possible breach of the Official Secrets Act. By Thursday, however, the Foreign Secretary, Robin Cook, seemed to hold out an olive branch to M15 with his announcement in Kuala Lumpur that he wanted MI5 to continue to play a key role in the war against the international drug trade by helping police to mount surveillance operations in Britain.

As the days passed, Shayler's accusation began to lose focus and attract harsher scrutiny. On Newsnight he accused MI5 of being hidebound by its own regulations and bungling a golden opportunity to "finish off" the IRA during the mainland bombing campaign in 1993. But MI5's recent record against Irish terrorism is actually quite good. If it had missed opportunities to apprehend IRA bombers, this was in part at least because of its strict observance of its own bureaucratic checks and balances, designed to prevent miscarriages of justice. How could Shayler claim to be disillusioned with MI5 over its monitoring of Labour ministers while at the same time advocating that it ignore the civil rights of suspected terrorists?

Nonetheless, Shayler's testimony has already done more to illuminate the real workings of the MI5 than any number of lectures in the name of "greater openness". Ironically in so doing he may actually have done the service a favour. For while the files on Mandelson and Straw are an embarrassment, their existence can hardly have come as a surprise to either. And while the Guardian has protested to MI5 about Shayler's claim that it tapped the phone of the newspaper's deputy foreign editor, Victoria Brittain, the security service appears to have had legitimate reasons for doing so.

One of the key post-Cold War concerns of M15's G Branch, the division responsible for countering international terrorism, is Libya. Shayler claims that in 1993 MI5 noticed that Libyan sources were paying large amounts of money into Brittain's Abbey National bank account. Suspecting a connection to Libyan intelligence, it launched a surveillance operation. However, by Shayler's own admission, MI5 ended it as soon as it realised the payments had nothing to do with money laundering, but were being used instead to fund a lawsuit against the Independent on behalf of Brittain's close friend, Kojo Tsikata, a ruthlessly efficient former head of internal security in Ghana.

It is testimony to MI5's skill that Brittain had no idea that she was under surveillance: MI5 may not be very good at keeping tabs on disgruntled ex-employees, but when it comes to counter-espionage operations its reputation among the world's intelligence agencies ranks very high.

Following the government's decision in 1992 to make MI5 the lead agency for co-ordinating operations against the IRA both at home and abroad, the turf battles which used to dog relations with the Royal Ulster Constabulary and Special Branch - and which were graphically exposed by John Stalker's inquiry into the killings of five republicans in Ulster in 1982 - are, by and large, a thing of the past.

LAST MONTH there was a graphic illustration of the effectiveness of the new arrangements when six IRA terrorists were jailed for 35 years at the Old Bailey for plotting to blow up London's electricity supply. In a 10-day surveillance operation, involving more than 300 undercover officers, agents from MI5's A branch - the so-called "Watchers Unit" - had broken into and bugged IRA safe houses and placed tracker devices on cars. Although the IRA team they were up against had supposedly been handpicked by the Provisionals' Army Council, the Old Bailey jury heard that the IRA men had never realised they were being followed.

This was not an isolated coup. Last September MI5 and the police foiled an earlier attempt by the IRA to detonate bombs in central London when they seized 10 tons of explosives in a raid on a warehouse in Hornsey, north London, and simultaneously smoked out and then shot dead an IRA suspect at a Hammersmith guest house.

Naturally, civil liberties groups have reservations about these operations, pointing out that, unlike M16, M15 is "self-tasking" and is free to sanction whatever operations it decides fall within its remit.

However, there is no denying that MI5's recent successes have won Lander praise from the most unexpected quarters. For instance Gary Murray, a private investigator who worked as a freelance undercover agent for M15 in the early 1980s until he grew disillusioned with its obsession with subversives, believes that MI5's surveillance techniques are second to none. "Believe me, they are bloody good. If they were following you now you wouldn't have a clue," says Murray.

The technology at MI5's disposal is a closely guarded secret, but Murray claims it surpasses anything available to the police, and certainly to investigative journalists. Indeed, MI5 is so protective of the highly sophisticated electronic surveillance equipment at its disposal that it frequently resorts to public immunity certificates in court - the so-called gagging orders which featured in the Scott Inquiry into the Matrix-Churchill affair - to stop defendants discovering its secrets.

The Watchers also have more conventional resources at their disposal, ranging from cars and motorcycles to fake identity passes and a wardrobe of disguises that the BBC's props department might envy. For telephone tapping there is the so-called Tinkerbell squad, specialist British Telecom engineers based at the BT building in southwest London. And when the information required cannot be obtained from tapping phones or bugging premises A branch can always call in the Rat Catchers - specialists at intercepting mail and opening letters. The problem, of course, is that MI5 is free to choose between what the world at large may regard as legitimate targets, and those, like Mandelson and Straw, and hundreds of millions of others, who are not.

Under M15's present structure, the importance of this judgement is clear from the fact that these operations are now the direct responsibility of Lander and his deputy, Eliza Manningham-Buller. In addition to A branch, there are three other main divisions: D branch, which deals with counter- espionage and all other non-terrorist threats, and covers such areas as organised crime, subversion and proliferation. G branch handles international terrorism, such as the threat from Libya. And T branch covers domestic terrorism, in particular Irish paramilitary activity. The maintenance of files on suspected subversives is the responsibility of the old F branch. According to security sources, this is now little more than "one man and a dog" and counter-subversion activities in general account for just three per cent of M15's annual spend.

However, in the light of Shayler's claims that M15's budget is as much as pounds 200m, the worry must be that even three per cent amounts to pounds 6m a year, and that is too much. Groups such as Liberty are now pressing the Government to grasp the nettle of Shayler's revelations and introduce tougher statutory controls on surveillance. At the same time, they argue, Labour should introduce a complaints procedure, so that individuals who suspect they have been illegally bugged or that there are errors in the files have the right to access data held on them.

For the moment, the focus is likely to remain on Shayler, who appears to have got his job in MI5 by answering a newspaper advertisement. But he was not not good enough for the Sunday Times, and, had it looked hard, MI5 would have spoken to a schoolteacher who described him as a born rebel, and to contemporaries at Dundee University, who may have recalled that Shayler's notoriety there was because he published extracts from Spycatcher in a student magazine.

The wonder is that he was recruited in the first place. That may be the most severe indictment of MI5 to come out the Shayler affair.

Leader, page 18