There was an increasing need for code-breaking and encoding capabilities to counter the rum runners, as they were sophisticated criminals attempting to intercept government communications as well.
Therefore, the U.S. Treasury Department appointed William and Elizebeth Friedman, a couple famous for cryptology, to create new code systems for the USCG operations against the prohibition violators and to decrypt the messages accumulating.
[4] The Friedmans were famous cryptographers with expansive careers in Washington DC for the U.S. army, navy, Treasury and Justice Departments throughout WWI and WWII.
[4] An example of their successes took place on 29 September 1930, when the unit intercepted a message sent by a shore station in Vancouver, British Columbia intended for a rum runner operating in the Gulf of Mexico.
The cryptanalytic unit used USCG patrol boats with high-frequency direction finding gear (HFDF, also nicknamed “Huff Duff”) created by William Friedman, and Elizebeth's code-breaking expertise to locate illicit radio stations and rum runners at sea.
She began hiring and training young professionals to be cryptanalysts, women with expertise in stenography and men with backgrounds in physics, chemistry, or math.
[4] Following the repeal of the prohibition, the USCG Unit 387 continued intercepting communications to counter smugglers attempting to evade liquor taxes and traffic narcotics.
As the unit intercepted these communications, they discovered similar message traffic that, once decrypted, suggested non-neutral activities between Axis agents and Latin America.
As worldwide aggression intensified in the 1930s, the U.S. Treasury Department requested Elizebeth Friedman and Unit 387 to officially shift focus from counter-narcotics to non-neutral communications in March 1938.
[4] The U.S. Treasury Department expanded the unit's functions to include monitoring ships and communications between Germany, Italy, and Central and South America.
[4] The FBI Director J. Edgar Hoover believed that intercepting messages of German agents in Latin America would be instrumental in eliminating Nazi spy networks in the US.
Once the Coast Guard intercepted sixty to seventy codes, it became apparent that the language used in the enciphered text was German and the encryption method used was likely a word separator.
The instructions hinted at the common practice of using “X” as a separator of words and using numbers to represent their equivalent letters as displayed on the keyboard of the Enigma machine.
The unit had an idea of the wheel patterns and monthly ring settings by January 1943, which was confirmed by messages sent between Berlin and Argentina in June and July that year.