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Operation Underworld was the United States government's code name for the cooperation of Italian and Jewish organized crime figures from 1942 to 1945 to counter Axis spies and saboteurs along the U.S. northeastern seaboard ports, avoid wartime labor union strikes, and limit theft by black-marketeers of vital war supplies and equipment.
In the first three months after the Attack on Pearl Harbor on December 7, 1941, the U.S. lost 120 merchant ships to German U-boats and surface raiders in the Battle of the Atlantic and in February 1942 the cruise ship SS Normandie – a captured French ship that was being refitted as a troop ship in New York harbor – was allegedly sabotaged and sunk by arson in the Port of New York. The Mafia boss Albert Anastasia claimed responsibility for the sabotage. After the war, Axis records showed no sabotage operation had existed and no evidence has ever been produced on the Allied side to indicate there had been underworld sabotage. The loss of the Normandie was almost certainly an accident.
Nevertheless, fears about possible sabotage or disruption of the waterfront led Commander Charles R. Haffenden of the U.S. Navy Office of Naval Intelligence (ONI) Third Naval District in New York to set up a special security unit. He sought the help of Joseph Lanza, who ran the Fulton Fish Market, to get intelligence about the New York waterfront, control the labor unions, and identify possible refueling and resupply operations for German submarines with the help of the fishing industry along the Atlantic Coast. To cover Lanza’s activities, he was suggested to approach Charles Luciano who was an important boss of the five New York Mafia crime families. Luciano agreed to cooperate with authorities in hopes of consideration for early release from prison.
Luciano was in Dannemora at the time, serving a 30 to 50-year sentence for running a prostitution ring. For his cooperation he was moved to a more convenient and comfortable open prison in Great Meadows in May 1942. Luciano’s influence in stopping sabotage remains unclear, but authorities did note that strikes on the docks stopped after Luciano’s attorney Moses Polakoff contacted underworld figures with influence over the longshoremen and their unions. In 1946 Luciano's sentence was commuted – after serving 9½ years – and he was deported to his native Italy.