Nazi Germany Tried to Beat Britain With Counterfeit Cash
The plot was incredibly stupid
This story originally appeared on June 12, 2016.
In 1967, organ experts cracked open an old organ at the church of San Valentino in Merano, Italy in an attempt to find markings which could date the instrument. Instead of a production label, the workers found £5 million in cash and the ghost of a Nazi covert operation.
Bankers would later determine that the cash was counterfeit — the product of a wartime Nazi effort to undermine the British economy.
Under the auspices of Operation Bernhard, Germany printed up millions in counterfeit British currency, using the proceeds to fund intelligence operations.
Though Bernhard ended with the war, anxious Allied officials and treasure-hunting amateurs would continue to seek out the remnants of its equipment, personnel and loot for decades afterward.
Bernhard drew its namesake from Bernhard Kruger, the SS major who ran the operation on behalf of the Reich Main Security Office, or RSHA. Kruger, along with another SS major, Alfred Naujocks, had the germ of the idea for a counterfeiting campaign in 1939.
Early on, SS commander Heinrich Himmler wanted to print fake British pounds to drop on Britain in a bizarre airborne mission.
Raining down phony cash on the British public, according to Himmler’s thinking, would provoke civilians struggling under wartime rationing to snap up the cash and push it into circulation, aggravating inflation and weakening the British economy.
By 1942, however, the Nazis settled on a more practical course of action for the counterfeiting campaign.
The RSHA would forge British pounds and use them to buy valuables, instead of just giving them away. That year, SS personnel in Operation Bernhard began studying the serial numbers on British pounds and buying up the raw materials to manufacture the currency.
Sachsenhausen concentration camp in Germany where the Nazis undertook a secret counterfeiting campaign. Photo via Wikipedia
Bernhard relied on slave labor from Jews imprisoned in Nazi concentration camps to make the cash. RSHA officials selected prisoners with backgrounds in printing, art, lithography and similar skills as the bulk of the operation’s workforce.
Avraham Sonnenfeld, one of the 143 Jews forced to take part in the counterfeiting operation, recounted his experiences in an interview with Mishpacha magazine.
Sonnenfeld lived in Hungary in 1944 where SS-Obersturmbannführer Adolf Eichmann was charged with the annihilation of the country’s Jewish population. The Nazis forcibly deported Sonnenfeld, his family and ultimately 424,000 members of Hungary’s Jewish population to the Auschwitz-Birkenau concentration camp as part of the extermination plan.
Sonnenfeld’s family had run a printing business in Hungary. His limited exposure to printing machines as a young man saved his life when Bernhard officials arrived at Auschwitz in search of prisoners with skills that could be useful in printing fake money. Sonnenfeld and other prisoners passed a perfunctory test by demonstrating a rudimentary ability to print out greeting cards.
The Nazis also drafted Adolf Burger, a Jewish typographer who had tried to save Jews from the Holocaust by forging fake baptismal certificates to hide their religious background. Burger, who later wrote a memoir of his experience, was arrested for the forgeries, sent to Auschwitz and drafted by Kruger into the currency printing operation.
Sonnenfeld, Burger and others were sent to a hidden section of the Sachsenhausen concentration camp near Berlin where the physical printing took place.
Bankers later determined that the Operation Bernhard forger at Sachsenhausen had carried out two runs of counterfeit pound sterling. The first batch of notes was amateurish, and merchants could easily spot the bills. But a second run proved to be much higher quality.
The counterfeiters briefly tried to expand their portfolio to include fake U.S. dollars, as well. Kruger assigned a criminal forger, Solly Smolianoff, to the task of duplicating dollars.
According to a Treasury Department history, Bernhard personnel found it too difficult to replicate the paper, ink and engraving plates used to make American cash at the time.
Once the cash was produced, Bernhard’s Col. Friedrich Schwend spent it to buy goods and distribute the counterfeit currency throughout Europe from his headquarters in Italy. American intelligence assessed Schwend as a person who “thrives on intrigue and illicit schemes,” and he put his passion for life in the criminal underground to work through a series of middlemen.
Schwend later told American intelligence officials that he used a network of five agents in Belgium, Italy, the Netherlands, Switzerland and Yugoslavia to buy up jewelry and other valuable goods with the fake pounds — products that often weren’t available for customers paying in German Reichsmarks.
Those agents, in turn, recruited subagents to spread the underground operation’s reach even farther.
German intelligence also used the counterfeit money to pay other agents — unaware they were being rewarded in dummy bills — for information.
British officials declared the practice “almost incredibly stupid.” If the Nazi informants discovered their handlers were plying them with fake cash, it could destroy their relationship and make it difficult to recruit other agents if word got out.
File photograph of Friedrich Schwend. Photo via CIA
U.S. Army intelligence files show that Schwend’s illicit purchasing operation ran like a mafia syndicate. When one of his agents, Theopic Kamber, made off with a large amount of counterfeit British pounds, Schwend allegedly ordered another agent, Alois Glavan, to kill the man for his offense.
Himmler would again dabble in Bernhard’s affairs with another comically inept suggestion.
The SS chief had been pushing propaganda parody stamps to paint the United Kingdom as a vassal of the Soviet Union. The creations were sendups of genuine British stamps from 1935, replacing King George VI’s head with Joseph Stalin’s. To Himmler, Bernhard’s illicit procurement network seemed like a natural venue to distribute the propaganda postage, but the SS leader would never manage to get his stamps into circulation.
However, the concern over Nazi counterfeiting wouldn’t die along with the Third Reich.
In 1945, Allied governments were wary that die-hard Nazis could mount a last ditch guerrilla effort inside Germany. Bernhard’s counterfeiting and Schwend’s valuables-trading business closed shop when the war ended, but U.S. officials worried that Bernhard could, in theory, fund an anti-occupation resistance effort.
The Office of Strategic Services, or OSS, the CIA’s predecessor agency, picked up hints of the counterfeiting operation as the war ended.
A driver for Hungary’s ambassador to Switzerland informed the service that Schwend had offered him American and British currency if he was willing to get a job at either country’s diplomatic facilities in Switzerland and inform on them. Immediately after the war, an agent who had bought paper used for Bernhard’s counterfeiting also informed on Schwend to the OSS.
The pound notes themselves were a clear indication that a massive counterfeiting operation had been underway. By the end of the war, occupation authorities seized upwards of £25 million worth of fake currency.
OSS officials shook Schwend down for information, employing him in a “bird dogging operation” to hunt down the remaining personnel, money and equipment from Bernhard to make sure nothing — and no one — from the operation could surface again in the hands of Nazi insurgents.
Like many Nazis and war criminals, Schwend fled to Latin America after the war. In Peru, he held down a straight job as the manager of a Volkswagen service garage, but continued to hustle in black markets.
The former Nazi officer tried his hand at life in a different corner of the underworld as an arms dealer. He set himself up as an amateur arms merchant, liaising with a middleman from Hong Kong to set up shady weapons deals. On the side, Schwend worked as an informant for Peruvian intelligence.
As late as 1963, the CIA and the Secret Service were still concerned that the counterfeiting operation might spring back to life. The agencies wanted to know what had happened to the plates the Nazis had used to make the fake British pound notes and whether Schwend had been approached to get back into the counterfeiting business.
In particular, they were curious if Schwend had interacted at all with Cuban forgers.
Months later, Schwend approached British intelligence in Lima on his own, offering to sell information about the location of lost Nazi gold. But the British were wary and described him as a “shady customer,” with whom they’d rather not associate.
Others outside the intelligence world would also go searching for counterfeit Nazi loot. Schwend told U.S. intelligence that he dumped £2,500 in forged British currency into Lake Toplitz near Salzburg, Austria at the end of the war.
Sure enough, in 1999, Maryland-based Oceaneering Technologies sent a robotic submarine to the bottom of the lake and brought up the soggy, disintegrating remnants of Bernhard’s fake money.
Today, Bernhard’s bills are still in demand among collectors. An original counterfeit £20 bill can now fetch almost $600 at auction for buyers hungry to own a piece of Nazi Germany’s failed attempt at financial warfare.