Krueger's Men: The Secret Nazi Counterfeit Plot and the Prisoners of Block 19by Lawrence Malkin, Michael Prichard
The true story of the greatest counterfeiting scheme in history and the men the Nazis called upon to help it succeed-a group of concentration-camp Jews. Only a fortnight after the start of World War II, at a meeting that has remained a secret for more than half a century, Nazi leaders and officials of the German Reichsbank approved an audacious plot to counterfeit
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The true story of the greatest counterfeiting scheme in history and the men the Nazis called upon to help it succeed-a group of concentration-camp Jews. Only a fortnight after the start of World War II, at a meeting that has remained a secret for more than half a century, Nazi leaders and officials of the German Reichsbank approved an audacious plot to counterfeit millions of British pounds. Now, drawing upon top-secret bank records, German and British correspondence, and interrogation transcripts, award-winning journalist and author Lawrence Malkin reveals how an unremarkable SS officer named Bernhard Krueger attempted to bring down the world financial system. But when Krueger discovered that forging pounds, and later dollars, was no easy task, he made a crucial decision: he would seek out the greatest counterfeiters of prewar Europe and enlist them in the effort. He found them in an unexpected place: a Nazi concentration camp.
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Krueger's MenThe Secret Nazi Counterfeit Plot and the Prisoners of Block 19
By Lawrence Malkin
LITTLE, BROWNCopyright © 2006 Lawrence Malkin
All right reserved.
Chapter OneATTACK THE POUND THE WORLD AROUND
The Second World War was barely two weeks old when leaders of Nazi espionage and finance gathered in a paneled conference room in Germany's Finanzministerium, at Wilhelmstrasse 61. Like that of the other overbearing buildings lodged behind pseudoclassical fronts, its architecture was proud and brooding. Most windows gracing this official avenue were topped by a heavy triangular tympanum. But the Finance Ministry had been erected in the 1870s without this classical adornment, adopting instead the Italianate style of a Medici palace. Wilhelmstrasse, Berlin's Pennsylvania Avenue, its Whitehall, gloried in the name of the kaisers of imperial Germany. The Finance Ministry stood toward its southern end. Farther down, the street was intersected by Prinz- Albrecht-Strasse, where stood a huge, pillared palace, the L-shaped headquarters of the Gestapo.
The plan on the Ministry's conference table on September 18, 1939, was simple. Why not have the Reichsbank print millions of counterfeit British banknotes, unload them on the streets and rooftops of the enemy, and then stand aside as the British economy collapsed? The idea of printing enemy currency was notespecially new or even original; similar plans also rippled across the desks of no less than Franklin D. Roosevelt and Winston Churchill. A hundred and fifty years before, the British had counterfeited the currency of the French Revolution to stoke the inflation already created by the revolutionaries' own printing presses. And Frederick the Great, who had forged the unforgiving Prussian military ethos that molded the German state, had also forged money to undermine his eighteenth-century enemies. But these schemes had all been hatched in a preindustrial age. Now, given the immense resources and brutal efficiency of Adolf Hitler's war machine, it should be much easier to print English banknotes on a vast scale, in greater quantities than any counterfeit bills ever produced before.
It was not beyond calculation that the Nazi plot could devastate the economy of Britain and its empire, whose worldwide commerce was transacted through the financial nerve center of the City of London, which enriched Britain's gentry while financing its wars. Details were put forward by Arthur Nebe, chief of the SS criminal police. Nebe, a schoolteacher's son and an ambitious, opportunistic senior civil servant, habitually injected himself into the many conspiracies that lay at the heart of the Nazi movement. He was a party member even before Hitler came to power in 1933, whose principal utility was his knowledge of the criminal underworld. Inventive and sinister, he was ever at the service of his superiors. Nebe had helped Hitler win supreme command of the armed forces in 1938 by fingering War Minister Werner von Blomberg's new wife as a former prostitute, forcing the old Prussian's resignation in disgrace. Nebe was the German representative on the International Criminal Police Commission, formed after World War I principally to track counterfeiters and drug smugglers across Europe's borders and later known as Interpol, from its cable address. After the Nazis marched into Austria in 1938, they moved the commission's headquarters from Vienna to Berlin, gaining access to fifteen years of case files and suborning its original purpose of tracking counterfeiters and drug smugglers. (Nebe also helped adapt the mobile gas van, originally used in the Nazi euthanasia of mental patients, for mass murder in Eastern Europe to soothe the sensibilities of the Reich security chief, Heinrich Himmler, who said he could not stand the sight of people being shot, even Jews.)
Nebe proposed mobilizing the extensive roster of professional counterfeiters in his police files. His immediate superior was Reinhard Heydrich, protégé of Himmler, the leader of the murderous SS, the Schutzstaffel (Defense Squadron), that began as the Nazi Party's armed militia. Heydrich was not in the least constrained by any legal scruples or even police protocol in rejecting Nebe's proposal, but he excluded the use of police files lest this discredit Germany's control over the international police organization, of which he was titular chief. Instead, he wanted to continue using the commission's European network to track down anti-Nazis and Jews who had escaped from Germany. Heydrich also hoped to extend his reach as far as the U.S. Federal Bureau of Investigation in order to obtain U.S. passport forms for possible forgery. (The FBI remained hesitantly in touch with the International Criminal Police Commission, breaking all contact only three days before Japan attacked Pearl Harbor on December 7, 1941.)
However resistant he was about using criminal files, Heydrich was enthusiastic about the counterfeit plan from the start. As cunning as he was cruel, he was an avid reader of spy stories. He liked to sign his memos with the single initial C in the mode of the English espionage thrillers fashionable between the wars. (It was and in fact remains the code letter for the chief of the British secret service.) Heydrich's days were full of dark assemblings. He ran Himmler's Reichssicherheitshauptamt (RSHA), the Reich Central Security Office. It compiled huge files on Germans suspected of disloyalty or liberal connections, and of course on Jews, whose methodical extermination Heydrich planned and initially supervised. He had his office in the Gestapo building itself, and his SS intelligence network eventually rivaled and finally took over the Abwehr, the old-line military espionage service headed by Admiral Wilhelm Canaris, who had been first officer on the training ship on which Heydrich had sailed as a naval cadet.
Heydrich was as physically self-confident as Himmler was shy and short-sighted. He was a skier, aviator, and fencer, and succeeded at whatever he did, even at playing the violin with fierce emotion, as he had with Frau Canaris as a young officer at the Canarises' musical evenings. Heydrich's inner tensions were betrayed principally by his high, metallic voice, his harsh temper, and his nightclubbing habits in Berlin, where the women preferred his aides to the wolf-eyed officer with prodigious sexual appetites.
The only serious objection to the counterfeiting plan came from Walther Funk, a homosexual former financial journalist, fat and well fed, who served as Hitler's economics minister. Funk was the Nazis' principal liaison to German industry until the bitter end and the titular head of the Reichsbank. He refused the use of the Berlin laboratories of the central bank's print shop, warning that the counterfeiting plan was contrary to international law and that it simply would not work. He was supported by legal advice from the military high command. Funk also demanded that fake bills be barred from Germany's conquered territories. He knew that the locals would dump Nazi scrip for what they thought were real pound notes. The last thing he needed while bleeding their resources for the Reich would be an infusion of forged pounds soaking up his overvalued and suspect occupation currency.
Joseph Goebbels also found the idea grotesque -"einen grotesken Plan," as he wrote in his diary - but he did not reject it out of hand. A similar plan had already been mooted privately to Goebbels by Leopold Gutterer, one of his most imaginative deputies. On September 6, Gutterer suggested dumping notes over Britain in quantities large enough to equal 30 percent of the currency in circulation. That would mean tons of paper for the overstretched Luftwaffe to carry, but it was the kind of mad scheme forever being dreamed up by Goebbels's own Propaganda Ministry, the megaphone for Hitler's Big Lies- the more often repeated, the more they stuck.
Goebbels, a blindly devoted follower who had spread the "Heil Hitler" greeting among Nazi Party members, was the only person with an advanced degree - he had a doctorate in philology- to remain in Hitler's immediate entourage throughout the war, and one of the very few with any college education at all. He confided his misgivings to his diary: "But what if the English do the same to us? I [will] let the plan be further explored." Whether Goebbels was represented at the September 18 meeting is unknown, but he clearly was well aware that a whiff of counterfeit paper might blow away the Reich's finances. They were already stacked as delicately as a house of cards because Hitler had refused to endanger his solid bourgeois support by raising taxes to rearm Germany until the day after the war actually began.
Despite the intense secrecy, word of the counterfeiting plan soon reached London. The Berlin meeting was outlined comprehensively in a letter from Michael Palairet, chief of the British legation in Athens and the very model of an English aristocrat representing his class and country. (His daughter married into the ennobled family of Britain's World War I prime minister, Herbert Asquith.) Palairet's letter to London was marked "Very Confidential" and dated November 21- just two months after the September 18 meeting- and contained material from the notebook of a Russian émigré named Paul Chourapine. Exactly how Chourapine had come by the information was not explained, nor were his sources named. He had been tossed out of Greece by the police in October and deported to France, where he could not be further interrogated. But his report was startling in both its detail and the level of its political and financial sophistication.
During a conference of experts in monetary matters held on the 18th September of this year at the German Ministry of Finance, the following plan was discussed: "Offensive against Sterling and Destruction of its Position as World Currency"
This plan, which was unanimously approved, contemplates in the first place the necessity of careful preparation and perfect execution of the work enabling the proposed aims to be realised in all the countries of the Near East as well as in North Africa, in the British Colonies and in South America.
It was decided to proceed with the printing in the printing works of the Reichsbank of 30 milliards [billions] of forged bank notes of £1 and of 2 milliards of various other notes. The transfer of these forged notes to foreign countries would be effected through the diplomatic bags of the Ministry of the Navy.
The consular representatives of Germany of the abovementioned countries would be charged with the disposal of this original merchandise in the most prudent manner. They have received instructions to try to obtain at first as much profit as possible until they receive the order to distribute the bank notes at a ridiculous price and even gratuitously, the main object being to flood the money markets with an enormous quantity of forged pounds.
The plan contemplates the moment when these forged notes in spite of their perfect get-up will be discovered. This moment will be the one when the coup which is already being prepared will be executed in the largest exchanges of the world, in those of New York, Amsterdam, The Hague, Lisbon, Rome, Naples, etc. and which is to lead to the collapse of sterling or to its serious depreciation. To make the success of this coup possible, the Ministry of Propaganda is to start an accusation against the Bank of England of having itself put the forged currency into circulation with the object of ensuring the support of the "pays états" [nation-states] and of concealing from the world its own bankruptcy. The Navy and the Air Force of the Reich will be called upon to perform certain great exploits, if possible spectacular, which should coincide with the execution of the coup explained above.
Confidence in the British currency having been destroyed, the [German] mark will be able to overrun the world market.
This document is the only known contemporaneous description of the Germans' original plan. Although the scheme was modified by the exigencies of war-and what battle plan is not?-Chourapine had captured its essence.
British diplomats shared the Athens memo with the Americans in February 1940. Herschel Johnson, the highly respected senior career diplomat at the American embassy in London, quickly passed a summary to Washington, where the State Department then warned the Treasury. Washington was watching apprehensively lest the dollar also become a counter in a game that many Americans hoped to stay out of, considering it Europe's war and the Nazis as Europe's problem.
The directors of the Bank of England, anachronistically known as "the Court," were soon alerted, along with Sir Montagu Norman, the Bank's governor. Norman ran the place with an iron hand, and the Bank's inner circle kept the information so close that for many years the staff did not know Palairet's letter had been its principal tip. Instead, they believed it had come via a dubious character dealing with the British embassy in Paris. This kind of obfuscation characterized the Bank's smug, pusillanimous behavior from then on. And indeed, for years the Bank of England was unable and, until recently, unwilling to tell the full story because its officials insisted that many of their own records had been transferred to the British secret services or lost. After the war, officials of the Bank even destroyed some records on their own.
If viewed merely as an espionage caper, the plot is one of the more benign of the Nazis' many nefarious projects endemic to such a gangster regime. But the story touches a deeper nerve and still prompts inquiries almost every month to the Bank of England, a perverse tribute to the continuing fascination with Nazi totalitarianism, which even today stimulates the darkest infantile fantasies of absolute power and stolen wealth. Allied experts later described it as "the most successful counterfeiting enterprise of all time," and Allied strategists at the highest level also realized their own vulnerability: an attack by them on the currency of a totalitarian country could not succeed. But for the Nazis, the plot proved effective in amassing loot and financing operations of marginal military utility but great propaganda value. Their best spy ended up in the movies, even though Berlin ignored his information. Their most daring commando won a place in history books, where he hardly deserved a mention. Bizarre as it was, the plot succeeded, although not in the way intended. As it ran its course, it demonstrated how easily the chaotic nature of totalitarian finance can degenerate into venal self-destruction. The British were embarrassed for half a century, but they won the war. The fundamental lesson applies today, and indeed whenever new kinds of warfare appear. In a war of choice, even the most imaginative plans for its conduct and financing can spin out of control if untested by the critical questioning essential to democracy.
A criminal subculture of counterfeiting coalesced early in the twentieth century as gold coins began giving way to printed banknotes. Between the wars, counterfeit currency circulated in the streets, shops, and back rooms of Europe. Some of the most notorious counterfeiters were failed artists like Hitler himself.
But in some countries, false bills were far less a danger than the threat posed by real ones. Every German had suffered the damage done by printing presses' spewing out billions of banknotes on the orders of the democratic Weimar Republic. Determining the first cause of that historic hyperinflation of 1923 is more than a theoretical debate of interest only to economists and their allied ideologues. Was it a deliberate move to cheapen Germany's currency in order to promote the exports that would pay Germany's punitive war debts? Was it designed to save workers' jobs? Or to enrich the great corporations and property owners by liquidating their debts? Perhaps all of these. Currencies had also collapsed in the new states of Austria, Hungary, and Poland following the demise of the Austro-Hungarian Empire in World War I. During the ensuing panic, stable currency - even when it was false - was in frantic demand. In port cities, sailors coming off ships were mobbed with offers to buy their foreign currency. With each passing minute the local scrip was worth dramatically more or less, depending on violent monetary fluctuations that undermined society and trust in authority.
In the interwar years, money therefore was rarely valued as a dependable standard of wealth as it had been throughout the rise of the bourgeoisie during the hundred-year peace that was shattered in 1914. Thereafter, no country stepped forward to serve as what economists call a hegemon, a conductor of the international orchestra, providing financial and physical security. Britain had filled that role during the Victorian age with its pound sterling and the Royal Navy, as America later would during the Cold War with the almighty dollar and the atomic bomb. But between the wars, money became a weapon. Trade could be manipulated by raising tariffs and devaluing currency to favor local products, thus seizing jobs and profits from other nations. Everybody accused everybody else, usually justifiably, of policies known as "beggar thy neighbor."
Excerpted from Krueger's Men by Lawrence Malkin Copyright © 2006 by Lawrence Malkin. Excerpted by permission.
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Michael Prichard has recorded well over five hundred audiobooks and was named one of SmartMoney magazine's Top Ten Golden Voices. His numerous awards and accolades include an Audie Award and several AudioFile Earphones Awards.
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