The Devil’s Bargain: Operation Underworld

How America’s darkest hour led to history’s most unlikely alliance—between the U.S. Navy and the Mafia—to defeat Hitler

The Meeting That Changed Everything

The setting was hardly appropriate for one of World War II’s most consequential decisions: a sterile warden’s office at Great Meadow Correctional Facility in upstate New York. On May 15, 1942, two visitors sat across from America’s most notorious crime boss, Charles “Lucky” Luciano, serving a 30-to-50-year sentence for compulsory prostitution.

The visitors were Moses Polakoff, Luciano’s attorney, and Meyer Lansky, the financial mastermind of organized crime. Their proposal was extraordinary: the U.S. Navy wanted Luciano’s help in protecting America’s ports from Nazi saboteurs and submarines.

Luciano’s first reaction was incredulous: “What the hell are you fellows doing here?”

When Lansky explained the Navy’s request, the imprisoned mob boss initially balked. Then came the clincher—Joe “Socks” Lanza, the gangster who controlled New York’s Fulton Fish Market, had already agreed to help and had given the Navy Luciano’s name. The government needed access to Luciano’s vast network of contacts on the docks, in the labor unions, and throughout the Italian-American community.

The conversation that followed would create Operation Underworld—the U.S. government’s code name for its secret cooperation with the Italian-American Mafia and Jewish organized crime from 1942 to 1945. It was a Faustian bargain born of desperation: America’s military would partner with its most wanted criminals to defeat an even greater evil.

When Fire Ignited Fear

The crisis that led to this unholy alliance began on the afternoon of February 9, 1942, when the luxury liner SS Normandie burst into flames at Pier 88 in New York Harbor. The French ship, recently seized by the U.S. government and renamed USS Lafayette, was being converted into a troop transport when sparks from a welder’s torch ignited a pile of life preservers.

The fire quickly spiraled out of control. By the next morning, the massive vessel had capsized in the Hudson River, becoming the largest ship ever lost in New York Harbor. While the official investigation concluded the fire was accidental, many Americans immediately suspected Nazi sabotage.

The Normandie disaster crystallized a terrifying reality: German U-boats were wreaking havoc along the American coast. In the first three months after Pearl Harbor, the U.S. had lost 120 merchant ships to German submarines in the Battle of the Atlantic. The Kriegsmarine’s commander, Admiral Karl Dönitz, calculated that sinking 800,000 tons of Allied shipping per month would strangle Britain into submission. Current losses already exceeded 650,000 tons monthly.

The possibility that Nazi agents were operating on American soil seemed all too real. Just months earlier, the FBI had arrested 33 German agents in the Duquesne Spy Ring. If saboteurs could strike at the heart of America’s most important port, the entire war effort could be compromised.

The Navy’s Impossible Problem

The task of investigating potential sabotage fell to Captain Roscoe MacFall, chief intelligence officer of the Third Naval District. MacFall commanded the Office of Naval Intelligence (ONI) for New York, New Jersey, and Connecticut—the region through which most American troops and supplies would flow to Europe.

MacFall assigned day-to-day operations to Commander Charles Radcliffe Haffenden, a debonair 40-year naval veteran who led ONI’s B-3 investigative unit. Haffenden was an unconventional officer—a former civilian engineer who cared more about results than military protocol. He would need every bit of his creativity for the challenge ahead.

Ivy League-educated naval officers, attempting their best Jimmy Cagney impersonations, descended on the roughest waterfront bars seeking information. They were met with a wall of silence. The dockworkers and fishermen viewed all authority figures with suspicion, and many had spent their lives on the wrong side of the law.

The investigators faced an uncomfortable truth: the New York waterfront was controlled by organized crime. Pier to pier, no one commanded more fear and respect among longshoremen, stevedores, shopkeepers, and boat captains than the Mafia gangs who ran the docks in Manhattan and Brooklyn.

Enter Lucky Luciano

Charles “Lucky” Luciano was not just any criminal—he was the man who had revolutionized American organized crime. Born Salvatore Lucania in Sicily in 1897, he had immigrated to New York as a child and risen to become what the FBI called “the man who ‘organized’ organized crime in the United States.”

In 1931, Luciano had orchestrated the murders of the two major Mafia bosses in New York—Giuseppe “Joe the Boss” Masseria and Salvatore Maranzano—in a bloody consolidation that ended the Castellammarese War. From the chaos, he created the modern American Mafia, dividing New York among five families and establishing the Commission as a national governing body.

Luciano’s empire spanned gambling, prostitution, labor racketeering, and bootlegging. He lived in a penthouse suite at the Waldorf Towers and was regularly seen at the most exclusive nightspots. But his luck ran out in 1936 when Special Prosecutor Thomas E. Dewey—the future presidential candidate and New York governor—targeted his prostitution racket.

The trial was a sensation. Dewey painted Luciano as “the greatest living gangster in America” and “the most dangerous.” Despite his wealth and influence, Luciano was convicted on 62 counts and sentenced to 30 to 50 years in prison. He was sent to Clinton Correctional Facility in Dannemora, New York—a remote maximum-security prison nicknamed “Little Siberia.”

From his cell, Luciano continued to direct his criminal empire through a carefully maintained network of lieutenants and allies. Among his closest associates was Meyer Lansky, the brilliant financial mind who managed money for organized crime families across the country, and Albert “Mad Hatter” Anastasia, who controlled the Brooklyn docks and ran the assassination squad known as Murder, Inc.

The First Overture

The Navy’s initial approach to organized crime began with Joe “Socks” Lanza, the gangster who controlled Manhattan’s Fulton Fish Market. Lanza commanded a fleet of fishing boats that regularly operated off the coast—exactly the kind of vessels that might spot German submarines.

In March 1942, Haffenden arranged a meeting with Lanza through the Manhattan District Attorney’s office. The labor racketeer, in what he claimed was a burst of patriotism, agreed to use his fishing fleet to help hunt U-boats. But Lanza’s cooperation came with a caveat: for broader waterfront security, the Navy would need Lucky Luciano’s help.

This presented an extraordinary problem. How could the U.S. Navy—representing justice, order, and American values—formally ally itself with the nation’s most notorious criminal? The answer lay in the exigencies of total war and the pragmatic calculation that defeating Hitler justified almost any means.

The Deal with the Devil

To facilitate negotiations with Luciano, the State of New York transferred him from the remote Dannemora facility to Great Meadow Correctional Facility in Comstock, much closer to New York City. The move was officially explained as routine, but it placed Luciano within easy reach of his criminal associates and Navy representatives.

Great Meadow was also just a short drive from Saratoga Springs, the playground of the New York underworld where gangsters gathered each summer for the racing season. State officials agreed to suspend normal visitation rules and recordkeeping, allowing Luciano to meet privately with his criminal lieutenants and Navy officers without official documentation.

The visiting log at Great Meadow soon read like a “Who’s Who” of American organized crime: Meyer Lansky, Frank Costello, Joe Adonis, and even the notorious Bugsy Siegel all signed the guest book. Over the course of the war, Luciano would receive 22 visits related to the Naval Intelligence program.

The deal was straightforward: in exchange for his cooperation, Luciano would receive improved prison conditions and the possibility of sentence commutation after the war. The Navy, meanwhile, would gain access to the most comprehensive intelligence network on the American waterfront.

The Scope of the Operation

Operation Underworld quickly expanded beyond its original anti-sabotage mission. Luciano’s organization provided several crucial services to the war effort:

Waterfront Security: Albert Anastasia, who controlled the docks through his leadership of longshoremen’s unions, allegedly guaranteed that there would be no strikes throughout the war. Under mob protection, not a single act of sabotage, labor strike, or suspicious fire occurred on the New York waterfront for the rest of the conflict.

Intelligence Gathering: Mob-connected fishermen, truck drivers, and dock workers became an informal spy network, reporting suspicious activities and monitoring potential enemy agents. The network provided intelligence on shipping movements, personnel, and any unusual activities around the ports.

Labor Control: When labor leader Harry Bridges threatened to organize strikes that could disrupt war production, Haffenden tasked his underworld contacts with ensuring Bridges would not become a problem. A wiretapped conversation confirmed that Joe Lanza assured Haffenden: “You won’t have any. I’ll see to that.”

The operation was headquartered in several suites at the posh Astor Hotel in Times Square, where Haffenden conducted his clandestine meetings with criminal informants. The surreal nature of the arrangement was captured in the sight of naval officers in uniform conferring with notorious gangsters in one of Manhattan’s most prestigious hotels.

The Normandie Connection

The truth about the Normandie fire remained one of Operation Underworld’s most closely guarded secrets. According to post-war accounts by organized crime figures, the fire was not an accident but a carefully planned act of sabotage—committed not by Nazi agents, but by the Mafia itself.

Albert Anastasia and his brother Anthony allegedly claimed responsibility for the Normandie sabotage. Their plan, according to these accounts, was to create a dramatic “enemy attack” that would force the government to seek their help. By demonstrating their power to both harm and protect American shipping, they could position themselves as indispensable allies in the war effort.

Luciano later claimed that he had conceived the scheme from his prison cell, showing his criminal associates a newspaper article expressing Navy concerns about possible German sabotage. His idea was to create a “sabotage incident” and then fix it, making the Navy dependent on his organization’s cooperation.

Whether true or not, these claims highlight the complex moral territory that Operation Underworld entered. If the Mafia had indeed sabotaged the Normandie to create the crisis that led to their partnership with the Navy, it would represent one of the most audacious criminal schemes in American history.

Operation Husky: The Sicily Connection

Operation Underworld’s most significant contribution to the war effort came with the planning for Operation Husky—the Allied invasion of Sicily in July 1943. This marked the expansion of the Navy-Mafia partnership from defensive operations to active military intelligence.

Luciano’s contacts proved invaluable for the Sicily operation. Through his network, the Navy obtained maps of Sicilian harbors, photographs of coastlines, and—most importantly—names of Sicilian Mafia figures who could be trusted to assist the Allied invasion. These contacts had their own reasons for wanting to see Mussolini’s fascist regime overthrown.

Mussolini had waged a relentless campaign against the Sicilian Mafia in the 1920s. Under Prefect Cesare Mori, fascist authorities had arrested over 11,000 suspected Mafia members and driven many more into exile, including future American crime bosses Joseph Bonanno and Carlo Gambino. The Sicilian Mafia was eager for revenge against the regime that had nearly destroyed them.

Haffenden formed a special F-Target Section dedicated to gathering intelligence for the invasion. His operatives, equipped with lists provided by their underworld contacts, flew to Algeria for Army Counter Intelligence Corps training before the invasion began.

When Allied forces stormed the beaches of Sicily on July 10, 1943, they were guided by intelligence gathered through Luciano’s network. Sicilian Mafia figures like Calogero Vizzini actively assisted the advancing troops, with Vizzini himself spending six days riding American tanks through mountain passes and directing his men to eliminate Italian snipers.

The Sicilian operation was so successful that just over two weeks after the invasion began, Mussolini was deposed on July 25, 1943. The strategic value of Operation Underworld had been dramatically demonstrated.

The Price of Partnership

The alliance between the Navy and organized crime carried significant costs for both sides. For the military, it meant compromising fundamental principles about law and justice. For the criminals, it meant operating under constant scrutiny and the risk of exposure.

Commander Haffenden, the operation’s architect, found himself walking an increasingly dangerous line. His enthusiastic embrace of unorthodox methods and his close relationships with criminal informants raised concerns among his superiors. The Navy brass worried about the reputational damage if the partnership became public.

Luciano faced his own challenges. While he gained improved prison conditions and influence over wartime operations, he had to balance his cooperation with the government against the expectations of his criminal organization. The Operation Underworld meetings provided cover for continuing his gambling syndicate and other criminal enterprises, but they also exposed him to unprecedented scrutiny.

The partnership created a complex web of competing loyalties and conflicting interests that would ultimately prove unsustainable in peacetime.

The Herlands Investigation

The full truth about Operation Underworld might have remained buried forever if not for political considerations in post-war New York. In 1946, Governor Thomas E. Dewey—the same prosecutor who had sent Luciano to prison—commuted the mob boss’s sentence on condition of immediate deportation to Italy.

Dewey’s decision sparked controversy and accusations that he had “sold” Luciano his freedom. In 1953, under pressure from critics, Dewey ordered a confidential investigation by William Herlands, the state’s commissioner of investigation.

Herlands spent months interviewing participants and reviewing documentation, producing a comprehensive 2,600-page report in 1954. The Herlands Report, as it became known, provided the most detailed account of Operation Underworld, summarizing more than 3,000 pages of testimony from naval officers, FBI agents, and former criminals.

The report confirmed that Luciano had indeed provided valuable services to Naval Intelligence, though it also documented the controversial nature of the partnership. Naval officials who reviewed the report requested that Dewey not release it publicly, arguing that disclosure would be a public relations disaster for the Navy and might damage similar future operations.

Dewey agreed to keep the report classified, and it remained secret until after his death in the mid-1970s. Only then did the full scope of Operation Underworld become known to historians and the public.

The Moral Reckoning

Operation Underworld forces us to confront uncomfortable questions about means and ends in wartime. Did the partnership with organized crime meaningfully contribute to Allied victory? The evidence suggests it did: the New York waterfront remained secure throughout the war, labor strikes were prevented, and the Sicily invasion benefited from Mafia intelligence.

But the operation also established a precedent for government cooperation with criminal organizations that would have lasting consequences. The CIA’s later partnerships with organized crime figures in assassination plots against foreign leaders can be traced, in part, to the precedent set by Operation Underworld.

The moral complexity of the arrangement is captured in Herlands’ final assessment: “No practical purpose would be served by debating the technical scope of Luciano’s aid to the war effort.” The commissioner essentially argued that the partnership’s effectiveness mattered more than its propriety—a pragmatic conclusion that reflected the desperate circumstances of total war.

The Fate of the Principals

The post-war fates of Operation Underworld’s key figures reflected the complex moral territory they had inhabited:

Charles “Lucky” Luciano was deported to Italy in February 1946, never to return to America. He briefly moved to Cuba in 1947, where he attempted to rebuild his criminal empire, but U.S. pressure forced the Cuban government to expel him back to Italy. He died of a heart attack at Naples airport in 1962, reportedly while meeting with a Hollywood producer about a movie of his life.

Commander Charles Haffenden found himself persona non grata in the post-war Navy. Despite his wartime contributions, his association with organized crime figures made him a liability. The Navy brass effectively threw him under the bus, ending his naval career. In a final irony, the man who had orchestrated one of the war’s most successful intelligence operations later volunteered for the Pacific campaign and trained at Camp Pendleton for the invasion of Japan.

Meyer Lansky continued his criminal career after the war, eventually becoming one of the most influential organized crime figures in America. He leveraged his wartime government connections to build gambling empires in Havana and Las Vegas.

Albert Anastasia maintained his position as a powerful crime boss until 1957, when he was assassinated while getting a haircut in a Manhattan barbershop, a victim of internal Mafia power struggles.

Governor Thomas Dewey never lived down the controversy surrounding Luciano’s commutation. Despite his legitimate concerns about the mob boss’s wartime contributions, critics continued to suggest he had been corrupted by his association with organized crime figures.

Lessons from the Shadows

Operation Underworld reveals the profound moral ambiguities that arise when democratic societies face existential threats. The partnership between the U.S. Navy and the Mafia was undoubtedly effective in achieving its immediate objectives: protecting American ports, preventing labor disruptions, and gathering intelligence for military operations.

Yet the operation also demonstrated how easily the principle of “the ends justify the means” can lead democratic institutions down dangerous paths. The precedent of government cooperation with criminal organizations would influence American intelligence operations for decades, contributing to a culture of moral flexibility in the pursuit of national security objectives.

The story also highlights the extraordinary circumstances that can create unexpected alliances. Italian-American criminals who had spent their lives flouting American law became, in their own twisted way, patriots fighting against fascism. Jewish gangsters like Meyer Lansky were motivated not just by self-interest but by genuine hatred for Nazi anti-Semitism.

The Cover-Up

Perhaps the most troubling aspect of Operation Underworld was not the original decision to partner with organized crime, but the systematic effort to cover up the operation after the war. To protect the Navy’s reputation, most documents related to the operation were destroyed. The few records that survived were classified for decades.

This cover-up served no legitimate national security purpose—by the 1950s, the operation’s existence could hardly aid America’s enemies. Instead, it reflected institutional embarrassment about the moral compromises that total war had required.

The destruction of records also made it impossible to fully assess the operation’s effectiveness or learn lessons that might inform future policy decisions. By burying the truth about Operation Underworld, the government lost an opportunity to honestly examine one of the most controversial intelligence operations in American history.

Legacy of Moral Complexity

Today, Operation Underworld stands as a remarkable example of how extreme circumstances can create unlikely alliances and force difficult moral choices. The partnership between the U.S. Navy and organized crime was born of desperation—a democracy facing potential annihilation by totalitarian enemies was willing to embrace any ally that could help ensure survival.

The operation succeeded in its immediate objectives: American ports remained secure, the Sicily invasion benefited from Mafia intelligence, and thousands of lives were likely saved through the prevention of sabotage and labor disruptions. But it also established precedents that would complicate American intelligence operations for generations.

The story of Operation Underworld forces us to confront uncomfortable questions that remain relevant today: When, if ever, is it acceptable for democratic governments to partner with criminal organizations? How do we balance moral principles against practical necessities in times of crisis? And what are the long-term consequences of compromising our values in pursuit of immediate objectives?

The answers to these questions are not simple, which is perhaps the most important lesson of Operation Underworld. In the face of existential threats, even democratic societies may find themselves making deals with devils. The key is to ensure that such partnerships remain exceptional, temporary, and subject to rigorous oversight—something that the secrecy surrounding Operation Underworld clearly prevented.

The story of Lucky Luciano and the U.S. Navy reminds us that history is often messier and more morally complex than we prefer to remember. Sometimes the forces of good and evil are not clearly delineated, and victory requires alliances that challenge our fundamental assumptions about right and wrong.

In the end, Operation Underworld succeeded in helping America win World War II, but it also demonstrated the moral costs that victory sometimes demands. Whether those costs were justified remains a question that each generation must answer for itself, based on the threats it faces and the values it chooses to uphold.