At the end of 1944, a banker working at the Bank of England stared in amazement at her own hand: she held one banknote in one hand and another in the other. They should have had different serial numbers, but they were identical. She immediately passed on her accidental discovery. The Bank of England’s management called in forgery experts, but they too only identified the forgery when they compared the two notes closely. Without the original with the same serial number, they simply could not tell which banknote was genuine and which was counterfeit, and genuine banknotes were in circulation all over the world. In Operation Action I, better known as Operation Bernhard, the Nazis counterfeited the British pound so perfectly that they could have wrecked the British currency had they not been overtaken by defeat in the war.
“If the counterfeiting operation had been fully organised in 1939 and early 1940, the outcome of the Second World War could have been completely different,” commented Rabbi Marvin Hier on the Nazi counterfeiting enterprise. England would have crumbled and exited the war, but it did so relatively smoothly, even though perfect pounds, as the Nazis classed defect-free forgeries, were accepted without a shadow of a doubt by banks all over the world.
The Nazis were not pioneers in forgery. The German Reichssicherheithauptmant, or Main State Security Office (RSHA), headed by Reinhard Heydrich, had been involved in it since the 1930s, but was no exception. Passports, stamps and the like were also forged by other countries, notably the Soviet Union.
The idea to counterfeit foreign currencies was conceived by the German intelligence service after they started running short of money for intelligence activities abroad. They launched the Andreas programme, but it was limited and not very interesting until it was expanded and called Action I or, more popularly, Operation Bernhard.
The programme was highly classified and researchers still disagree about when and how it started, but it seems that Lieutenant Alfred Naujocks had the idea in 1939. He was a field operative before and at the outbreak of the war, but when he proved to have good nerves but was rather flippant, he was transferred to a bureau that dealt with document forgery.
Disgraceful! No, come on!
He found his new job boring as hell. Forging passports and documents? Everyone did it. Counterfeiting money? That would be a challenge, he thought, when a friend showed him some counterfeit British banknotes. They began to discuss how the pound is one of the few stable currencies that is valued and accepted worldwide, and how if the Germans managed to print and circulate enough high-quality counterfeits to flood the world with them, the English economy would be badly shaken.
Alfred Naujocks rushed to his boss Reichard Heydrich with the idea of radically expanding the Andreas programme, but Heydrich rushed to Hitler and added US dollars on the way to counterfeit British pounds. “Not dollars, we are not at war with the US”, Hitler reportedly replied, before giving the green light to a programme he initially considered “dishonourable”.
The Abwehr, or German military intelligence, refused to take part in the deception. The decision was partly influenced by the negative opinion of Helmuth James von Moltke, legal adviser to the Supreme Command of the Armed Forces and secret leader of the non-violent resistance against the Nazis. The German Minister for Economic Affairs said no, fearing that the flood of counterfeit pounds would shake the then German mark. The German central bank also refused to participate, but the snowball was already rolling downhill, threatening to turn into an avalanche that would bury England under itself.
The final impetus for the forgery enterprise was probably given by Heinrich Himmler, who needed an inexhaustible source of foreign money to finance his informers abroad. Alfred Naujocks was put in charge of the project. The idea was his, but it soon became clear that he had neither the training nor the technical know-how to turn it into reality: there was no way he could develop paper of sufficient quality for printing.
Reinhard Heydrich might have forgiven him for that, because money paper is the most controlled paper in the world and its production is highly complex, but he did not want to stick his nose into his private affairs. In the autumn of 1940, he sent him to the Eastern Front with an SS unit and replaced him with Major Dörner.
Even under his watch, things did not improve, although the search for skilled craftsmen to produce accurate printing plates and for experts who could develop and handle good quality paper and ink was accelerated. Some private German companies tried to leap over the technical hurdles to successful counterfeiting, but even they got nowhere.
Now the Nazis have dug into their extensive archive of prison records and started looking for suitable experts among the many Jews imprisoned in concentration camps. At the same time, they sent the then Captain Bernhard Krüger to Paris, presumably to find out how others were overcoming the problems of forgery.
He was not exactly panic-stricken for information, but he relaxed not because he wanted to sabotage the programme, but because no one was really pressuring him. The Nazis seem to have finally decided to counterfeit British pounds in unimaginable quantities only in June 1942, probably after Jan Kubiš and Josef Gabčik had succeeded in killing Richard Heydrich more by lucky accident than by a well-thought-out plan.
At that time, Germany was already desperately short of foreign currency to buy the materials needed for war production, and there was almost no alternative. Bernhard Krüger, now a major, gathered a group of trained experts and set up his illegal money printing press, so secret that many in the intelligence services were still unaware of it, in the Sachsenhausen camp, which at that time housed around 16,000 prisoners.
How to make the perfect paper?
“Major Bernhard Krüger came with two lieutenant-colonels and told us to start printing English pounds. He threatened to kill us all if we were not precise … In February 1943, everything was ready and printing began,” George Kohn and Jack Papler reported after the war. On the first of December 1942, they recalled, they had everything they needed for the job.
Max Bober was also in his place. He and 2,000 Jews were rounded up in a raid in 1938, but his life was saved by the fact that he was a printer and mechanic by trade. He was transferred from Buchenwald concentration camp to Sachsenhausen and, together with six Jewish fellow prisoners, was informed that he had been chosen to produce “official documents” because of his skills.
Nothing was clear to him, just as it was not clear to Paul L. when he heard his number in Auschwitz and the order to stay in his place after the assembly with a few other prisoners. He thought they were going to be taken to work in the mine, but instead Bernhard Krüger appeared in front of them.
He chose 55 men for himself. They were separated from the other prisoners. In the morning, they were taken by train to Berlin and from there to Sachsenhausen. They were given new prisoner numbers and a new home: barrack 19, “a secret barrack, a camp within a camp”, as Paul later recalled. They stayed there until the Nazis merged it with barrack 18.
One barrack housed just over 140 people, the number Krüger had requested for the forgery project, and 16 SS guards lived with them. The other barracks housed a printing press, equipped with the latest printing equipment and a photographic laboratory. Both barracks were surrounded by three rows of electric barbed wire.
No one working on the project was allowed to have any contact with the outside world. If he so much as spoke to a guard or prisoner outside his group, he would have been punished. Being completely separated from the other prisoners, they became like a family, Paul recalled. Once a week they were taken to take a shower from behind their barbed wire, but they had no way of communicating with the other camp inmates, and on top of that they had to sing German songs on the way to “act happy”.
On the one hand, they were indeed better off than the other prisoners. Major Krüger made sure they had a little more food and better living conditions than they did, but not because he was so sympathetic to them, but because he didn’t want to end up on the Eastern Front: as long as his men were doing well, he was safe, and as soon as something went wrong, he would go down with them.
But the “inhabitants” of barracks 18 and 19 knew that their days were numbered. They were enlightened from the start that any mistake meant instant death. If a guard so much as detected that anyone was trying to sabotage the operation of the programme, all members of the counterfeiting group would be immediately executed.
The programme was secret and only Jewish prisoners printed money. None of them were under any illusion that they would be allowed to survive. They knew too much. They worked slowly to stay alive as long as possible, but they could not work too slowly either, lest they be accused of sabotage. They were constantly looking for a balance that would give them another day to live, and they were successful in maintaining it.
They worked so thoughtfully in five departments: engraving, printing, binding, photography and phototypesetting, or the high-end printing technique with line cliché. They forged French identity cards for the use of German spies, certificates of residence, documents for the evacuation of civilians from French Brittany, and “red cards” from the People’s Commissariat for the Interior or the Russian Security Intelligence Service.
They printed instructions for German spies, such as how to destroy the railway tracks, and produced stamps, including one with propaganda messages in English: “This war is a Jewish war.” At the end of the war, they had the seals of all the South American countries and others in a box. They could print the passport of just about any country they could think of, which helped the Nazi criminals considerably in their flight abroad after the defeat of Germany.
But their most important task was still to counterfeit money, even though at the beginning of 1943 they still did not have the perfect paper for it. After many failed attempts, the Nazis finally gave up and decided to find skilled craftsmen to make the paper by hand.
They looked inwards, bringing several German craftsmen from the Eastern Front, who finally realised that the British pound was very similar to Turkish money. They teamed up with Hahnemühl, and in April 1943 Hahnemühl began to produce a special paper made from 90 per cent cotton and 10 per cent Turkish linen imported via Italy.
423 million counterfeit pounds
The Hahnemühl company delivered 120,000 reams of paper to the camp every month, each ream capable of making 8 banknotes. They started the counterfeiting with the £5 ones – today each note of that value would have a purchasing power equivalent to £205 – but found that the paper was still mediocre. And it remained so until the only professional criminal among the camp’s counterfeiters, Solomon Smolianoff , entered the scene.
When he was not in a European prison, this Russian-born Jew, born in 1897, was professionally laundering counterfeit British pounds and US dollars in the casinos of Monte Carlo. His career began in 1926, when he met the famous engraver Ergene Zotov and found common ground with him – counterfeiting and laundering counterfeit money.
He was constantly imprisoned by the authorities, but no prison could suppress the thrill he felt when he broke the law. He was even imprisoned in Dachau, but for unknown reasons he was released only 20 days after his detention. In 1940, he finally ended up in the Mauthausen concentration camp. Even there he did not survive: he used his artistic flair to draw portraits of the guards, so they took him under their wing and protected him from forced labour and death.
At the end of 1942, his astonishing criminal record fell into the hands of Major Krüger. He was immediately transferred to Sachenhausen, where he was told he had to correct mistakes and improve the forgery process. “If not, Himmler will no longer support the operation and everyone connected with it will be liquidated,” Krüger threatened him again.
But that was quite unnecessary. Smolianoff did not resist. Now he could do what he enjoyed under the protection of armed guards, not on the run from them. The accommodation was even better than in some prisons, and he had relatively enough cigarettes. The other inmates did not like him, but Krüger quickly noticed this and removed him to a special workroom.
Smolianoff has lived up to his expectations. He was an expert in printing plates and had an excellent understanding of the complex process of printing counterfeit money on glass plates. These were used instead of metal ones because they were relatively easy to make and lasted for about 3 000 prints.
He made sure everything on the note was perfect, including the way the ink soaked into the paper. When it arrived, he was given a sample of the exact signature, the date and the serial number he had to use. Where the Germans got this information is not clear to this day.
The work was demanding and slow. Printing took between 15 and 20 hours. Afterwards, the prints were carefully hung and left to dry for a week. They were then cut into banknotes and each one carefully examined.
The banknotes were divided into four categories: perfect, near-perfect, defective and discarded. Those with a defect would only fool the most unwary and were intended to be dumped over England. This would have been the quickest way to shake the British currency, but they had to abandon the plan because by the time they succeeded in starting the counterfeiting machine, the German air force had already been defeated and the British had reoccupied their airspace.
The best quality money was given to the most respected spies, such as Cicero, who worked in neutral countries such as Switzerland. Almost complete ones were sent to Nazi collaborators to be distributed in occupied countries. They also tried to put defective banknotes into circulation in this way, but they were more careful with them.
They had to accept that this way of introducing counterfeits into the banking system would undermine the British currency more slowly than expected, although in the end it was the German Finance Minister who stopped the circulation of counterfeit money in European countries. After hundreds of thousands of counterfeit notes had already been put into circulation in France, Italy and Greece on a test basis, he was worried that they would undermine national currencies, and he wanted to strengthen them.
Paul L. was not a printing expert, so as an assistant he sorted the forgeries, which were bundled into bundles of 500 notes, by category. He placed each banknote on a glass base so that the light shone on it from below and above. He used a knife to remove any traces of wood, in case there might be a splinter left on the paper, or to attach it to the paper to cover up any misprint.
Banknotes that looked original were crumpled, folded, kneaded and thrown to the ground to artificially age them. Some £100 notes were pierced with a needle, as if they had been stitched up by an English bank official.
By mid-1943, Krüger’s men were printing almost 40,000 banknotes a month, but this was not enough. Krüger demanded that they move from the initial £5 to counterfeiting all British banknotes, yet 40% of the counterfeits were still £5.
Soon, nearly 150 prisoners, as many as were now working for Krüger, were printing around 500,000 counterfeit notes every month. By the end of the war, they had counterfeited banknotes worth around 134 million pounds then, or 5.3 billion pounds today.
Of these, 8% were good enough to be put into circulation. This meant that the market was flooded with around 10 million counterfeit pounds then, or 423 million today. The counterfeits were so good, in fact, that they circulated almost uninterrupted and the agents who distributed them slowly began to receive their own counterfeit money back.
The banknotes were also tested in brothels in Paris to see if they were good enough to be put into circulation. Prostitutes there used to work for the British soldiers and would certainly have spotted a fake, they assumed. They didn’t.
Late in 1942, Swiss bankers and American Express stumbled across the counterfeit £10,000 in Zurich. The notes were obviously still in the test group, because many of the later notes were so excellent that either former government officials or former employees of government printing works must have been involved in their production. These forgeries were not recognised in Switzerland and were only detected by the Bank of England.
Pocket allowance for own needs
The forgeries were first transported from the printing works to Berlin and then distributed across Europe, where they were used by agents in the field to buy original products such as art paintings, cars, furniture, gold bars and the like, and sell them for Deutschmarks. Sometimes the counterfeits were exchanged for stable European currencies such as the Swiss franc, the original pound sterling and the US dollar. This money was then used to pay their spies and buy what they needed abroad, such as penicillin and plastic explosives.
Other counterfeit notes were taken to German embassies in Norway, Denmark and Portugal, Spain and Switzerland, where they were exchanged for local currency. This was done with great success, but the scale of the counterfeiting scam was too small to shake the British economy in a dangerous way.
But it was big enough to whet the appetites of Heinrich Himmler and some others in the intelligence corridor: they decided to line their own pockets by the way. They were helped by Fritz Schwend, whom the Allies had first heard of when an Austrian, Rudolf Blaschko, was arrested in Croatia for counterfeit pounds and told an American diplomat that he had got the money from Schwend.
In fact, the latter was the main distributor of counterfeit money. The role was perfect for him. After marrying a wealthy woman, he was involved in arms dealing and counterfeit money laundering in Asia and America in the 1930s. He was so successful in his work that by 1938 he had a luxurious home in Opatija and an annual income of more than 50,000 dollars then, or 860,000 dollars today.
During the first years of the war, he was looking for hidden money for German military intelligence, but kept getting into trouble in Croatia and the German embassy complained. In the spring of 1942, he was denounced by the army, but he and Blaschko tried to sell forged German submarine plans to British agents in Trieste on their own.
He was captured by the Italians and handed over to the Germans, who imprisoned him. Since selling false military secrets was not exactly treason, they could not charge him with anything, but one report says that he was in serious trouble anyway.
He might even have been killed if he had not been rescued by an old acquaintance, Willi Gröbel, head of the Berlin VI Office. RSHA or the Berlin branch of the Foreign Intelligence Service. He came to Klagenfurt, explained to him that he was going to distribute counterfeit money for the Nazi Party and offered him a deal: cooperate and you will be released from prison.
It is not known whether Schwand accepted the deal or not, but the Gestapo released him and even allowed him to return to Italy, and Schwand began working for German intelligence. An RSHA employee claimed that Himmler had given him a special task which overlapped with the official laundering of counterfeit money, namely the laundering of counterfeit money for private purposes. He chose him because he had experience in the counterfeiting business and because he was a trained swindler.
The “private” operation was supposed to be even more secret than the official one, so secret that even the head of the Munich branch of the RSHA intelligence service did not know about it. In September 1943, in order to conceal the illegal activities from his own people, Schwendo was given a new name. As Major Wendig, he was free to move around Germany, but for practical reasons, on paper he became a member of a German tank unit and at the same time a Gestapo officer.
The intelligence leadership found a former Jewish art dealer, George Spitz, next to him, threatened him with arrest and deportation of his entire family, and forced him to cooperate with Schwend and Gröbl. Thus, in May 1944, he used counterfeit money to buy local currency, gold and artworks in Belgium and Switzerland, and incidentally purchased three valuable carpets for Schwend’s mansion in Merano, Italy. Finally, he managed to buy some valuable paintings from the prestigious art collection of the Jewish art collector Jacques Goudstikker.
The network of people who helped distribute the money and buy whatever the bosses wanted slowly grew and eventually reportedly numbered 50 people. In the summer of 1944, for example, Colonel Josef Spacil, who had been in the eastern theatre until then, was recruited to take over the running of Office II, in charge of the RSHA’s receipts and materials, and to secretly manage their accounts.
The system worked like this: Schwend demanded, for example, 1000 kilograms from Josef Spacile, which translated into one million counterfeit English pounds. Spacil’s private secretary went to collect the money and handed it to a courier to take it to Schwend, and Spacil wrote down the amount he had received under his name. Schwend reportedly took 33 per cent of the commission for himself and handed the rest of the money to his people in the network to launder.
Josef Dauser, head of the Munich branch of the VI Intelligence Office, or Foreign Intelligence Service, told the Allies after the war: ‘Gröbel, Schwend, Dr Höttl and his assistant, SS Captain Froelich, put a lot of money in their pockets. Operation Bernhard was the name given to a financial venture similar to Action I, which was hidden from Berlin … In Berlin, the official financial operation was always called Action I.”
According to this interpretation, the sources that usually refer to the biggest counterfeiting operation in history as Operation Bernhard are sinning because it was only a private venture by selected Nazis, while the official name was Action I.
In any case, Ernst Kaltenbrunner, head of the RSHA and the Gestapo, his assistant Arthur Scheidler, Dr Wilhelm Hottl, then head of intelligence and counter-intelligence for Central and South-Eastern Europe, his assistant, Captain Froelich, Frizt Schwend and Willi Gröbel made a tangible financial recovery from Operation Bernhard. For example, all the money distributed in Italy, Croatia and Hungary was delivered directly to Dr Höttl.
To kill them or not?
The counterfeit money was also used to buy weapons, ammunition, military equipment, drinks, gold and jewellery. The military supplies were generally used immediately, while the gold and money were sent to a German bank. Valuable porcelain, clothing, shoes and furniture were sent to three warehouses in Austria, and wherever the goods landed, a list of prices was always returned to Josef Spacil so that the total amount could be deducted from Schwend’s debt.
The official and private counterfeiting scams were so successful that the Bank of England had to withdraw most of the £5 notes in circulation during the war and replace the paper on which it printed its money. Towards the end of the war, it also banned the use of all £10 to £100 notes.
If the war had lasted a little longer, England would have fallen, but Sachsenhausen was approached from one side by the Russians and from the other by the Americans. Himmler wanted to stop the forgery, Krüger wanted to continue it. If the operation were to be stopped, all those who had taken part in it would be killed, probably including him, so he convinced Himmler that they would need money to escape after the war and that it was therefore prudent to continue.
The print shop and its workers were evacuated. 20 large military trucks full of equipment were loaded onto a train and taken to Mauthausen, Austria, on 2 March 1945. The counterfeiting prisoners were again strictly separated from the others, but they had not yet fully set up the printing works and started work when they were transferred again on 15 April.
This time they were taken to a small camp called Redl-Zipf, secretly called Schlier. “I saw the beautiful Danube on the way, but I didn’t have the chance to admire it,” Paul later recalled, thinking with each new evacuation that it was finally time to die. But not yet. Three days later, on 18 April 1945, they arrived at the camp where the engine for the first real liquid-fuelled ballistic missile, the V-2, was being tested.
They unloaded the equipment, started digging and poured a concrete base 60 to 90 centimetres thick. The machines were placed on it and their counterfeiting printing plant was up and running again, but it was shut down again on 3 May.
The counterfeiting prisoners were divided into three groups and loaded separately onto open trucks. They were not told where they were being taken. For the first time, the equipment was left in the camp. Paul was convinced that they were finally on their way to death. He travelled with the second group, thinking that the first group was already dead.
When they reached their destination, the North Austrian camp of Ebensee, he realised he had been wrong. Like the first group, the second group was placed in SS barracks and separated again from the other prisoners. A third group was waiting. The latter had to walk the route because it was no longer safe to transport them by truck.
Before it reached its destination, the Nazis began warning the prisoners over loudspeakers to resist the Russians, and the army took control of the camp. The SS guards instructed the soldiers to hand the prisoners over to the Americans, but it was not clear what fate awaited those who took part in Operation Action I or Bernhard.
SS guards lined them up and forced them to march to the camp gate. One guard thought they should be killed because they were under the Intelligence Service and knew secret information that could be passed on, Paul recalled. The others resisted, saying that no one had ordered them to do so, and they were taken back to the camp.
The order was indeed to kill everyone connected with the operation, but he was travelling with a third group, and it had not yet reached its destination. “I was free the moment I mixed with the other people in the Ebensee concentration camp,” Paul later described the moment he lost himself in the crowd and regained his faith in survival.
On 5 May, a third group arrived at the target, and with it the order to kill. It arrived a few hours too late. The counterfeiting prisoners had already been lost among the other 8000 prisoners, so the guards kept the third group alive. There was no point in killing them anymore, the secret was already out.
Major Krüger, 40, did not wait for the Americans to arrive. He had his bag with all the necessary forged documents ready for him and his 24-year-old girlfriend Hilde Möller for some time. He had two passports, one Swiss and one Paraguayan, and a large supply of counterfeit British pounds.
He escaped before the Allies arrived, but was caught by the British after the war and imprisoned for two years. He was then handed over to the French, but they let him go home a year later. He took a job in a factory that made paper for Operation Bernhard during the war.
“He was fair to us,” one camp survivor said of Krüger after the war. Others testified in his favour when he appeared before the denazification committee in the 1950s. They also exonerated him, although Adolf Burger, another of “his” men, claimed: “Major Krüger was no Oskar Schindler. He was a murderer like all the others. Six weeks before the end of the war, he had six people shot because they were sick, but he couldn’t send them to hospital without them saying something.”
Just before the end of the war, the Nazis were forced to cover up any traces of what they had done during the war. Prisoners destroyed incriminating documents and banknotes that were thrown away. There were reportedly £60 million worth of them at the time.
They were put in heavy wooden crates. “In case of danger, destroy contents”, it said on each one. They were loaded onto trucks and driven away. During the nights of 30 April to 3 May, some of the cargo also ended up at the bottom of Lake Toplitzsee. The containers were only found in 2000.
Crates of counterfeit money also ended up in other lakes, and one lorry deliberately drove its cargo into the river Aniza. The pressure caused the containers to open and the counterfeit banknotes floated with the current for up to 16 kilometres.
Millions of counterfeit pounds were eventually found, but most of them had disappeared. Some of the money was probably hidden and some of it, along with forged passports, was used to help war criminals flee to South American countries and make a comfortable life for themselves.
Outstanding North Koreans
In more modern times, a similar venture was undertaken in North Korea, but overseen by the late dictator Kim Jong II, who died in 2011. A secret agency there, known as Office 39, reportedly laundered millions of counterfeit US dollars, known as super bank notes, in Las Vegas casinos. Most of them ended up in US circulation.
“In a sense, Office 39 is an investment bank. It provides the money for what Kim needs. Like all organised crime syndicates, it has its own don, its own accountant and its own very complex business network that controls the money and makes sure the bosses are paid. But when organised crime members don’t do their business, they get killed,” explained David Asher, between 2003 and 2005 the head of the US Federal Bureau of Investigation’s Illicit Activities Division.
Office 39 also managed Kim Jong II’s Swiss personal account and sold arms to foreign countries. It reportedly “earned” between $500 million and $1 billion each year. While its counterfeits were not enough to radically erode the US currency, they were enough to spread unrest.
“In 2004, the Central Bank of Thailand issued a warning that ‘super bank notes’ had appeared on the island. Panic broke out. Customers flooded Thai banks to return their $100 notes. They totalled hundreds of millions of dollars, most of them genuine,” explained journalist David Rose.
In 2007, for example, North Korea bought enough paper to print $2 billion worth of US banknotes. While the Nazis were less good at counterfeiting US currency, the North Koreans had no problem with it.
