The Laszlo and Edgar Bulletin

The Laszlo & Edgar Bulletin

The Grand Counterfeit: The Plot

Operation Bernhard was an exercise by Nazi Germany to forge British bank notes. The initial plan was to drop the notes over Britain to bring about a collapse of the British economy during the Second World War. The first phase was run from early 1940 by the Sicherheitsdienst (SD) under the title Unternehmen Andreas (Operation Andreas, Operation Andrew). The unit successfully duplicated the rag paper used by the British, produced near-identical engraving blocks and deduced the algorithm used to create the alpha-numeric serial code on each note. The unit closed in early 1942 after its head, Alfred Naujocks, fell out of favour with his superior officer, Reinhard Heydrich.

The operation was revived later in the year; the aim was changed to forging money to finance German intelligence operations. Instead of a specialist unit within the SD, prisoners from Nazi concentration camps were selected and sent to Sachsenhausen concentration camp to work under SS Major Bernhard Krüger. The unit produced British notes until mid-1945; estimates vary of the number and value of notes printed, from £132.6 million up to £300 million. By the time the unit ceased production, they had perfected the artwork for US dollars, although the paper and serial numbers were still being analysed. The counterfeit money was laundered in exchange for money and other assets. Counterfeit notes from the operation were used to pay the Turkish agent Elyesa Bazna—code named Cicero—for his work in obtaining British secrets from the British ambassador in Ankara, and £100,000 from Operation Bernhard was used to obtain information that helped to free the Italian leader Benito Mussolini in the Gran Sasso raid in September 1943.

In early 1945 the unit was moved to Mauthausen-Gusen concentration camp in Austria, then to the Redl-Zipf series of tunnels and finally to Ebensee concentration camp. Because of an overly precise interpretation of a German order, the prisoners were not executed on their arrival; they were liberated shortly afterwards by the American Army. Much of the output of the unit was dumped into the Toplitz and Grundlsee lakes at the end of the war, but enough went into general circulation that the Bank of England stopped releasing new notes and issued a new design after the war. The operation has been dramatised in a comedy-drama miniseries Private Schulz by the BBC and in a 2007 film, The Counterfeiters (Die Fälscher).

The designs used on British paper currency at the beginning of the Second World War were introduced in 1855 and had been altered only slightly over the intervening years. The notes were made from white rag paper with black printing on one side and showed an engraving of Britannia by Daniel Maclise of the Royal Academy of Arts in the top left-hand corner. The £5, also known as the White Fiver, measured 7 1116 in × 4 1116 in (195 mm × 120 mm), while the £10, £20 and £50 notes measured 8 14 in × 5 14 in (210 mm × 133 mm).

Bernhard Krüger

The notes had 150 minor marks that acted as security measures to identify forgeries. These were often assumed to be printing errors, and were changed between issues of notes. Each note bore an alphanumeric serial designation and the signature of the Chief Cashier of the Bank of England. Prior to the release of any notes by the Bank of England, all serial numbers were recorded in ledgers so the bank could verify its liabilities; these numbers were checked when the notes circulated back through the bank.

A watermark appeared across the middle of every note; it differed depending on the value of the currency and the alphanumeric serial designation used. According to John Keyworth, the curator of the Bank of England Museum, as the paper currency had never been successfully counterfeited, the Bank of England "was a little complacent about the design of its notes and the production of them"; he described the notes as "technologically ... very simple".

At a meeting on 18 September 1939 Arthur Nebe, the head of the Reichskriminalpolizeiamt—the central criminal investigation department of Nazi Germany—put forward a proposal to use known counterfeiters to forge British paper currency. The forged notes—amounting to £30 billion—would then be dropped over Britain, causing a financial collapse and the loss of its world currency status. Nebe's superior officer, Reinhard Heydrich, liked the plan, but was unsure of using the police files to find the available individuals. Joseph Goebbels, the Reich Minister of Propaganda, described it as "einen grotesken Plan", "a grotesque plan", although he saw it had potential. The main objection to the plan came from Walther Funk, the Reich Minister for Economic Affairs, who said it would breach international law. Adolf Hitler, the German Chancellor, gave the final approval for the operation to proceed.

Although the discussion was supposed to be secret, in November 1939 Michael Palairet, Britain's ambassador to Greece, met a Russian émigré who gave him full details of the plan discussed at the 18 September meeting; according to the émigré's report, the plan was titled "Offensive against Sterling and Destruction of its Position as World Currency". Palairet reported the information to London, who alerted the US Department of the Treasury and the Bank of England. Although the Bank considered the existing security measures were sufficient, in 1940 it released a blue emergency £1 note which had a metal security thread running through the paper. It also banned the import of pound notes for the duration of the war in 1943, stopped producing new £5 notes and warned the public about the danger of counterfeit currency.

Banknote forged by the Germans.

In July 1942, following changes in the aim of the plan, Reichsführer Heinrich Himmler revived the operation.  Whereas the original plan was to bring about the collapse of the British economy through dropping the notes over the UK, Himmler's new intention was to use the counterfeit money to finance German intelligence operations. The security services under Himmler's control were poorly funded, and the counterfeit funds were used to cover the financial shortfalls in revenue from the Reichsbank.

SS Major Bernhard Krüger replaced Naujocks; searching through the offices used daily by Operation Andreas, he found the copper engraving plates and the machinery, although some of the wire gauzes used to make the watermarks were bent. He was ordered to use the Jewish prisoners incarcerated in the Nazi concentration camps, and set up his unit in blocks 18 and 19 at Sachsenhausen. The blocks were isolated from the rest of the camp by additional barbed wire fences, and a SS-Totenkopfverbände unit was assigned as guards.

Krüger visited several other concentration camps to assemble the people he needed, primarily selecting those with skills in draftsmanship, engraving, printing and banking. In September 1942 the first 26 prisoners for Operation Bernhard arrived at Sachsenhausen; 80 more arrived in December. When met by Krüger, he called them in the formal and polite form Sie, rather than the more demeaning du, which was normally used when the Nazis spoke to a Jew. Several of the prisoners selected later reported that Krüger had interviewed them for the role, and treated them with politeness and good manners. He also provided the prisoners with cigarettes, newspapers, extra rations and a radio. Prisoners had a ping pong table, and they would play with the guards and among themselves; evenings of amateur theatricals also took place, staged by the prisoners, with a mixed audience of guards and counterfeiters; Krüger provided musicians for musical numbers.

The printing equipment was also delivered in December, and 12,000 sheets of banknote paper a month began to arrive from Hahnemühle; it was large enough for four notes to be printed on each sheet. Production of counterfeit notes started in January 1943; it took a year for production to return to the levels achieved in Operation Andreas.

Each section of the process was overseen by one of the prisoners, and the day-to-day operations were run by Oscar Stein, a former office manager and bookkeeper. Two twelve-hour shifts ensured non-stop production, with around 140 prisoners working. The printed sheets, each containing four notes, were dried and cropped using a steel ruler; the edges were roughened to imitate the deckle finish of the British notes. The operation peaked between mid-1943 and mid-1944, with approximately 65,000 notes a month produced from six flat-bed printing presses.

To age the notes, between 40 and 50 prisoners stood in two columns and passed the notes among them to accumulate dirt, sweat and general wear and tear. Some of the prisoners would fold and refold the notes, others would pin the corners to replicate how a bank clerk would collect bundles of notes. British names and addresses were written on the reverse, as happened with some English notes, and numbers were written on the front – duplicating how a bank teller would mark the value of a bundle. Four grades of note quality were introduced: grade 1 was the highest quality, to be used in neutral countries and by Nazi spies; grade 2 was to be used to pay collaborators; grade 3 was for notes that were to be possibly dropped over Britain; grade 4 were too flawed to be of use and were destroyed.

The Nazi authorities were so pleased with the results of the operation that twelve prisoners, three of whom were Jewish, were awarded the War Merit Medal while six of the guards received the War Merit Cross, 2nd class.

In May 1944 Ernst Kaltenbrunner, an SS Obergruppenführer (general) in the Reichssicherheitshauptamt (Reich Main Security Office; RSHA), ordered that the counterfeiting unit begin to produce forged US dollars. The artwork on the notes was more complex than that of the British currency and caused problems for the forgers. Additional challenges they faced included the paper, which contained minute silk threads, and the intaglio printing process, which added small ridges to the paper.

The prisoners realised that if they managed to fully counterfeit the dollars, their lives would no longer be safeguarded by the work they were undertaking, so they slowed their progress as much as they could. The journalist Lawrence Malkin, who wrote a history of Operation Bernhard, writes that prisoners considered this to have the tacit approval of Krüger, who would face front-line duty if Operation Bernhard ended. In August 1944 Salomon Smolianoff, a convicted forger, was added to the production team at Sachsenhausen to aid the counterfeiting of US dollars, although he also assisted in quality control for the pound notes. The Jewish prisoners working on the operation at the time complained to Krüger at having to work with a criminal, so he was given his own room to sleep in.

In late 1944 the prisoners had counterfeited the reverse of the dollar, and the obverse by January 1945. Twenty samples of the $100 note were produced—without the serial number, whose algorithm was still being examined—and shown to Himmler and banking experts. The standard of engraving and printing was considered excellent, although the paper used was technically inferior to the genuine notes.

The counterfeit money was transported from Sachsenhausen to Schloss Labers, an SS-run facility in the South Tyrol. It was put through a money laundering operation run by Friedrich Schwend, who had been running an illegal currency and smuggling business since the 1930s. He negotiated a deal in which he would be paid 33.3% of the money he laundered; 25% was given to his agents undertaking the work—as payment to them and their sub-agents, and for expenses—leaving him with 8.3%. He recruited what he called "salesmen" in various territories, and built a network of 50 agents and sub agents; some of these were Jewish, deliberately selected because there was less chance that the authorities would consider them to be working for the Nazis. He informed his agents that the money had been seized from the banks of occupied countries.

Schwend was given two objectives: to exchange the counterfeit money for genuine Swiss francs or US dollars, and to assist with the funding of special operations, including buying black market arms from the Yugoslav Partisans then selling them to pro-Nazi groups in Southeast Europe. He also arranged for the counterfeit notes to pay the Turkish agent Elyesa Bazna—code named Cicero—for his work in obtaining secrets from the British ambassador in Ankara. Counterfeit notes with a face value of £100,000 were used to obtain information that helped to free the Italian leader Benito Mussolini in the Gran Sasso raid in September 1943.

Between late February and early March 1945, with the advance of the Allied armies, all production of notes at Sachsenhausen ceased. The equipment and supplies were packed and transported, with the prisoners, to the Mauthausen-Gusen concentration camp in Austria, arriving on 12 March. Shortly afterwards Krüger arranged for a further transfer to the Redl-Zipf series of tunnels where they were to restart production. The order to resume production was soon rescinded, and the prisoners were ordered to destroy the cases of money they had with them. That which was not burnt by the prisoners was loaded onto trucks with the printing equipment and sunk in the Toplitz and Grundlsee lakes.

At the start of May, Operation Bernhard was officially closed down and the prisoners were transported from the caves to the nearby Ebensee concentration camp. They were divided into three groups, and a truck was to make trips to and from the camp. An order had been issued that the prisoners were to be killed, but only once they were together at Ebensee. The truck delivered the first two groups to the camp, where the men were housed separately from the general camp population. On the third journey the vehicle broke down after it had picked up the final group of prisoners; the men in the last group were marched to the camp, which took two days. As the order had specified that the prisoners had to be killed together, the first two groups were kept safe to await their comrades. Because of the delay with the third journey and the close proximity of the advancing Allied army, on 5 May the first two groups were released from their isolation into the general population and their SS guards fled. That afternoon the third group arrived at the camp. When the guards learned what had happened to the first two groups, they also released their prisoners into the main prison population and fled. The Americans arrived the following day and liberated the camp.

Estimates of the number and value of notes printed during Operation Bernhard vary from a total of £132,610,945 (of which £10,368,445 were sent to the RHSA central office), up to £300 million (of which £125 million were usable notes).

Lake Toplitz, Austria, where the SS dumped printing equipment and some of the currency.

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