lawrence malkin author of Krueger's Men and The National Debt
The Story
excerpts - Krueger's Men

Lawrence Malkin

The Secret Documents

Chapter 1: Attack 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 the other overbearing buildings lodged behind pseudo-classical fronts, its architecture was proud and brooding. Most windows gracing this official avenue were topped by a heavy triangular tympanum. But the Finance Ministry was 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 traversed 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 dubious idea of printing enemy currency was not especially new or even original; similar plans also rippled across the desks of no less than Franklin D. Roosevelt and Winston Churchill. One 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, also forged money to undermine his 18th Century enemies. But these schemes had all been hatched in a pre-industrial 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, a schoolteacher's son and an ambitious, opportunistic senior civil servant who 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. He 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 is 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 police 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 , the RSHA or Reich Central Security Office. It compiled huge files on Germans suspected of disloyalty, liberal connections, and of course Jews, whose methodical extermination Heydrich planned and initially supervised.

Heydrich was as physically self-confident as Himmler was shy and short-sighted. He was a skier, aviator, fencer, and succeeded ably at whatever he did, even at playing the violin with fierce emotion, which he did as a young officer at 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 principal Nazi 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. 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 the notes over Britain in quantities large enough to equal 30 per cent 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' 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 he had come by the information was not explained, nor were his sources named. Chourapine 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 both in 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 [1939] 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 remains the only contemporaneous description of the Germans' original plan. Although it was modified by the exigencies of war--and what battle plan is not?--Chourapine had captured the essence of the scheme.

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 inner circle kept the information so close that for many years the Bank's staff did not know that 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 were 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 in the nefarious history of this gangster regime. But the story touches a deeper nerve and still prompts inquiries to the Bank of England in a perverse tribute to the continuing fascination with Nazi totalitarianism, which stimulates the darkest infantile fantasies of absolute power and stolen wealth. Allied technical experts judged it "the most successful counterfeiting enterprise of all time," and in sheer quantity it was certainly the largest. But Allied strategists quickly recognized their own vulnerability and backed off. While its initial tactical success embarrassed London, the plot was a strategic failure. Nevertheless the Nazis, their aggressive ideology only loosely fettered to reality, literally forged ahead. Only a small proportion of the bills were put into circulation to buy raw materials from neutrals and guns from dispirited partisans. Some helped finance espionage and unconventional warfare of only marginal military utility but great propaganda value. The Nazis' 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. So the bizarre plot succeeded, but certainly not as intended. The story demonstrates how easily authoritarian command can degenerate into self-destruction. The fundamental lesson is applicable whenever new kinds of warfare appear: Even a clever and imaginative idea can spin out of control if untested by the critical questioning essential to democratic government.

Chapter 6: Ingathering of the Exiles