The SIS was represented aboard by the use of European Foreign Service stations, with the other stations in such places as New York, Buenos Aires and Istanbul. Additionally British Passport Offices were used where no SIS representation was possible.
SIS was organised by a man known as Z. Z's actual name being Claude Dansey. Dansey started reorganising SIS to use a network of agents who used local businesses set up by SIS as their cover. Each of these agents had a Z-number (Dansey being Z1). The agent network even included members of the German Social Democratic Party.
The head of SIS Admiral Sinclair died on 4th November 1939 and was succeeded by Stewart Menzies. Sinclair had been Head of SIS for 15 years, coming into his post when SIS was fifteen years old. Menzies was recommended to succeed him by Sinclair himself, but the Foreign Secretary, Lord Halifax, suggested that Menzies be considered Acting Chief until the cabinet could be consulted. Some shameless lobbying of the Prime Minister secured Menzies the job, the previous two heads (Smith-Cummings and Sinclair) having been selected by the Committee of Imperial Defence and Secret Service Committee respectively, both of which were no longer in existence. Menzies appointment was the first such time the SIS chief had been appointed by the cabinet.
Menzies re-organized SIS into two separate divisions, which he controlled :
Y Headquarters, consisting of :
- Political Section, headed by Malcolm Woolcombe and David Footman. Military Section headed by Major Hatton-Hall.
- Naval Section, headed by Captain Russell and Commander Christopher Arnold-Foster RN.
- Air section, headed by Wing-Commander Fred Winterbotham.
- Counter-espionage section, headed by Colonel Valentine Vivian.
- Industrial section, headed by Rear-Admiral Charles Limpenny DSo, RN.
- Financial section, headed by Paymaster Commander Percy Sykes.
- Special Communications Unit, headed by Richard Gambier-Parry.
- Cipher section, headed by Colonel Walter Jefferys.
- Press section, headed by Raymond Henniker-Heaton.
The German blitzkrieg of May 1940 eliminated the Stations in Paris and Brussels, the stations in The Hague having been effectively destroyed; personnel had been withdrawn from Prague, Warsaw, Bucharest and Berlin. The Russian invasion of Finland forced the Helsinki Station to seek refuge in Stockholm this effectively ruined the Passport Control Office system. The
The amalgamation with the Z network did little to improve the situation, but Menzies quickly rebuilt the remaining stations and began expanding the operations, with new stations being established in Gibraltar with SIS operations in Spain being restrained for fear of bringing them into the war on Germany's side and losing all access to the Mediterranean if Spain captured or besieged Gibraltar, Another station was in Tangiers and through Africa to Freetown in Sierra Leone. There were other SIS offices aboard, but coverage was minimal. There was an office in New York, covering the USA to some extent, but the eastern Mediterranean and middle east were virtually blind until the Balkan Intelligence Centre had been created in Istanbul in December 1939. The situation began to improve in June 1940 and eventually a permanent SIS office in Cairo was established.
Contact was made and maintained through various methods, everything from the wireless to fishing boats were used to contact the groups in clandestine meetings, and from 1940 RAF Westland Lysanders began to fly agents and supplies to occupied Europe under the cover of darkness by 419 (Special Duties) Squadron.
The Polish, Norwegian, Czechs, Free French. The Polish networks were so efficient and operational that SIS struck a deal allowing them to operate independently of SIS in exchange for all information, with the sole exception of material deemed to be concerned with Poland's internal political affairs. The Dutch services were not so helpful, seeming to be more interested in sorting their own politics than helping the Allies. SOE/Dutch operations were not successful and a number of Dutch SOE agents were captured when SOE security was breached later in the war. SIS suffered worse with the French who expended a considerable amount of effort fighting with both their rivals and Allies. There were an unlimited number of opportunities for embarrassing misunderstandings. SIS's control of all contact with agents in Europe did not rest well with the French and Dutch who had to use SIS networks for contacting and inserting agents, the Belgians also engaged in internal wrangling. SIS was effectively working off the stay-behind-networks active in the occupied countries, accessed by the governments-in-exile who shared their information with SIS. SIS's ability to contact its agents and gather German intelligence was also deeply intertwined with Ultra for Signals intelligence.
As well as the RAF's assistance from November 1940, SIS also had its own 'Inshore Patrol Flotilla' for coastal operations the insertion of agents and supplies to Occupied Europe.
By the end of 1940, SIS was at the end of its decline and had reached the nadir of its fortunes. But at this moment, a brand new intelligence source became available through Switzerland. An unofficial intelligence network in Switzerland with connections with German Social-Democrats attracted SIS's attention and the British Consul in Basle cultivated the private financier and controller of the network as an intelligence source which delivered extremely valuable intelligence, a second source materializing in December 1939 being the head of Abwehr and made that network available to SIS, and through an agent to political agents in Germany itself.
In the summer of 1940, new intelligence sources had been founded as part of MI6, the British Security Co-ordination in New York and the Inter-Services Liaison Department in Cairo.
During the war, SIS operated in all the Western European occupied territories, North Africa and the Middle East engaged in intelligence gathering, counter-espionage and sabotage alongside SOE agents operating with and in parallel to that rival organization, SIS and OSS both played a part in the propaganda war against Germany using powerful radio transmitters to broadcast to the occupied countries.
After the liberation of Paris, the intelligence situation was changed dramatically as the pressures were lifted from the Spanish and Portuguese stations. Countries that had been neutral also began to offer unofficial assistance to SIS.
Late in September 1943, Station IX had been established to deal with Soviet espionage and subversion, the first signs that the intelligence theatre was gearing up to a battle for Europe after Germany was defeated, what would probably be a prolonged (as it turned out 50-year long) struggle to liberate the Soviet-controlled countries in Eastern Europe. SIS now started to adopt an Anti-Soviet posture ready for the Cold War, the positions were reminiscent of the structure in place before Germany had launched Operation Barbarossa. Soviet agents had penetrated SIS during the war and Section IX and MI5 discovered these towards the end of the WWII.