Krueger's Men (12 page)
Schwend then went looking for new adventures with an Austrian named Rudolf Blaschke. They had worked together in Croatia, and now they concocted a scheme to trick British agents into buying spurious plans for a new U-boat. Schwend argued that if his plot had succeeded, the British would have been duped into diverting resources for unnecessary defenses. The Gestapo, suspecting him for his business and social contacts with the enemy and unaware that this time he was trying to scam British agents, slapped him into an Austrian jail in the spring of 1942. Schwend might have been executed if not for his old comrade Willi Gröbl, an SS money-launderer in Italy who was buying up weapons. Gröbl urgently needed Schwend’s talents to help him manage the expected flow of Bernhard pounds. Schwend said he had never traded counterfeit before, but he nevertheless transferred his always fungible allegiance to Walter Schellenberg’s SS intelligence unit. By autumn, just as Bernhard Krueger’s presses in Sachsenhausen were starting to roll, Schwend was back in Italy and in business in a big way.
Schwend’s real boss was Reinhard Heydrich’s successor, an Austrian SS bully named Ernst Kaltenbrunner, of intimidating stature (6 feet 7 inches) and utter loyalty to Himmler. He carried the dueling scars appropriate to the face of an RSHA chief and a taste for the bureaucratic wars, which he conducted continuously against his foreign intelligence chief Schellenberg over how to spend the new Bernhard pounds, needed at that moment to set up a German intelligence network in Italy. Hitler had forbidden German espionage to operate there as long as Mussolini was in power, but now the Fascist regime was trembling. Introduced to the two feuding commanders by Wilhelm Hoettl, Schwend immediately impressed them as someone who, like themselves, could operate on a grand scale. “And yet his conversational style was not brilliant; he affected, deliberately it seemed, the dry manner of a businessman who thought only in figures, and he employed no gestures,” recalled Hoettl, who was soon to be Schwend’s nominal superior, based in Vienna as chief of SS intelligence for Italy and the Balkans.
Late in November 1942, a man who gave his address as Vaduz, Liechtenstein — then as now the capital of an anachronistic state known for dealings as shady as its steep Alpine valleys — changed some pound notes at the Banque Fédérale in Geneva without incident. A few days later the same individual tried to change £10,000 in notes of small denominations at the American Express office in Zurich. This naturally attracted the attention of the management and, in short order, the Swiss counterfeit police and Switzerland’s central bank. The notes were examined and declared “clever forgeries,” in the words of Sam Woods, an American diplomat with ties to intelligence who was based at the consulate in Zurich. Washington was less interested in counterfeit pounds than the possibility of fake dollars, but the Swiss Bankers Association immediately sent a circular to all its members warning them to exercise the “greatest caution” in accepting English five- and ten-pound notes. Specimens were sent to the Bank of England, which confirmed with little detail or explanation that they were forgeries. They expressed their sympathy for the Swiss, but the bulk of the circulation was on the Continent and not in England — so why help the counterfeiters improve their product by disclosing their mistakes? Rather unhelpfully, the Old Lady told the Swiss National Bank to test the paper under ultraviolet light and rely on the “feeling and the texture of [the] paper.”
The fakes were more of the dangerous Type BB counterfeits, and it did not take the Swiss police long to collar the man from Vaduz. He turned out to be Rudi Blaschke, who had no compunction about fingering Schwend. But they had their story ready: Blaschke said Schwend gave him the notes in Croatia, where Schwend had received them from an agent who claimed to have got them from a Turk in Istanbul, who in turn said
he
had received them from an agent in Iran, where — as everybody surely must know — British and Russian occupation armies were circulating counterfeit money. The Swiss, perhaps speaking the language of diplomacy, said they believed him. But Woods didn’t. He telegraphed the State Department that Schwend and Blaschke were probably German agents.
Woods was absolutely right. In fact, Schwend could have been the model for the clichéd agent straight out of a spy novel, that suavely dressed man at the table in the rear under the slowly rotating ceiling fan, with a huge roll of bills in his pocket and a stream of supplicants, some swaggering, others unctuous, all eager to sell him something for hard cash. Schwend, Rudi Blaschke, and Rudi’s brother Oskar continued to haul suitcases full of fake pounds into the Vienna SS office, count them out, rough them up, and keep them in stock there until needed. But Schwend was nowhere as much at ease as in disputed territory, trading with rival warlords and trying to come away the winner in any deal. The territory of Istria, his second home, was a no-man’s-land of partisans, bandits, and the feckless Italian occupiers who had no stomach for Mussolini’s war. Kaltenbrunner asked Schwend to buy as many guns as he could for the always cash-starved SS, and Schwend swooped down the Adriatic coast into Croatia, buying arms from the Yugoslav partisans. The Bernhard pounds, of course, were Schwend’s currency of choice, and no one seemed to question their authenticity. They were quickly passed by the peasant deserters from hand to hand, mainly in exchange for food.
When the Italian army started collapsing on home territory in the summer and autumn of 1943, the Wehrmacht scooped up arms there. In Yugoslavia, Schwend bought arms from the fleeing Italian commanders. Communist partisans had begun their campaign of mass Italian executions, dumping thousands of bodies into ravines around Trieste. From the Yugoslav Chetniks, Schwend was an avid buyer of submachine guns that had been air-dropped by the British or delivered by submarine. Such valuable assault weapons quickly found their way into the hands of SS commandos.
In the middle of one of these operations, Schwend and Willi Gröbl were caught behind the unstable Italian lines and ambushed by partisans — Communists, as Hoettl tells it, adding a dubious story of betrayal and confession. Gröbl was killed immediately; Schwend was shot through the thigh and bullets grazed his abdomen. Abandoning his car, he tried to drag Gröbl’s body into a vineyard to bury it but, weak from loss of blood, crawled into a culvert under the road and hid there for twenty-four hours, pelted by a downpour but also saved by it, because the rain obliterated his tracks. The next day, he dragged himself to the nearest village and was taken to a hospital on an oxcart. Hoettl obtained a posthumous Iron Cross first class for Gröbl, but Schwend’s decoration was only second class because he had survived.
Such borderland activities only increased the flood of counterfeits exasperating and confounding Threadneedle Street. Between November 1942 and June 1943, more than 3,000 five- and ten-pound fakes passed through Swiss banks, especially Geneva’s Banque Fédérale and Credit Suisse in Zurich. Swiss bankers could not conceive of an operation on the scale of Bernhard and believed that the notes had probably been drawn from a stock of counterfeits printed for the abandoned Nazi invasion of Britain. Other reports of counterfeits spread as far afield as Denmark, and they substantially undermined confidence in the pound despite the Allies’ rising fortunes. During the first half of 1943, the Red Army had surrounded and smashed the Germans at Stalingrad in the decisive battle on the Eastern Front; the British Eighth Army was decimating the Afrika Korps; and Italy’s halfhearted military was teetering toward surrender. Yet the pound, which could be exchanged for 14 Swiss francs at the start of the year and should have been buoyed by these Allied military successes, bought less than 10 francs by June 1943 and showed no signs of strengthening on the Swiss foreign exchanges.
More counterfeits turned up in the Chilean embassy in London via its diplomatic pouch from Lisbon, and at the Portuguese consulate in Liverpool. That was home territory, and the Bank of England finally relented, albeit grudgingly. It wrote the Swiss, giving more details about how to examine the deckle edges and the watermark. The letter also gave the precise weight of the paper in a ten-pound note: a square meter of real bills weighed 45.8 grams, while the forged paper was slightly heavier at 54.1 grams.
None of this was of much use to a bank teller, so the Swiss pressed for more. On July 19, 1943, chief cashier Peppiatt wrote Zurich that the Bank of England’s officers had carefully considered whether to say more, but “They feel, and I think you will agree, that it would not be feasible to define closely all the technical features.” And so on, down to the familiar assurance that the feel of the paper and its appearance under a quartz lamp would be a telling although “not an infallible criterion.”
But Swiss banks continued to get stung with bogus bills, and they continued beseeching the Bank of England. On November 8, Peppiatt wrote the Swiss National Bank a meandering letter vaguely warning them to examine “the blackness of the ink, the size of a full-stop [period], the thickness of a line or curve, as well as differences in fluorescence,” and finally told them about “definite differences both in the ‘sum block’ in the lower left-hand corner… and in the angle, position or direction of a line or curve and to the point of crossing of, say, a line or curve in certain portions of the wording.” These features were shared with the Swiss like state secrets — as if the counterfeiters in Block 19 did not know about them already.
In 1944 the Swiss National Bank sent a personal emissary, a Monsieur Gautier, who plunked himself down in London for two months and refused to go away, even after Peppiatt, in a conversation at the Bank on February 22, “admitted that there were, of course, certain secret devices but… these were jealously guarded by our technical experts.” Peppiatt’s unbudging attitude was summarized by his deputy, H. G. Askwith, who sat in on the meeting and wrote a summary of it. But just one week later, the chief cashier’s office had to start backing down.
In a letter to S. B. Chamberlain, the Bank’s deputy governor, Askwith reminded him that “we made a New Year’s resolution to keep future replies to the Swiss… as brief as possible and even try to reduce them to a formula.” The Swiss would merely be told whether the notes they had submitted were real or forged, nothing more. He then reported that new forgeries had arrived — thirty-eight of them, to be precise, packed into a seven-page letter from Zurich. It apparently expressed rising annoyance at the stubborn Old Lady; she must have cost the Swiss plenty in money paid out to Schwend, his agents, or his victims when the British bounced back the counterfeits. Peppiatt left it to his deputy to seek permission from Chamberlain for “a further chat with [Gautier] if… anything emerges which can usefully be passed on.” There is no record of any subsequent meetings. Peppiatt wrote the Swiss again in April 1944 but did not give away anything more about the secret markings. The Swiss obviously were not mollified. Although there was no public announcement, they were stuck with about 1 million Bernhard notes. In response, Swiss banks simply stopped accepting any British pounds at all.
That made little difference to the money-launderers, who by now had the phony pounds circulating throughout the Mediterranean and were ordering even more counterfeits from Berlin. The International Criminal Police Commission, under Nazi management, also helped divert attention by circulating regular notices depicting various specimens of forged pounds — except for their own Bernhard notes, which were never mentioned. Those who paid the highest personal price were the forgers in Block 19, now churning out more than half a million notes every month. Their round-the-clock shifts were monitored with a fanaticism that differed from the random sadism of earlier days, and even the slightest infractions of discipline, such as whispering to a fellow-prisoner at work, were punished with exhausting physical exercise. It was, at long last, time for the Nazis to push their advantage.
B
ETTER THAN
W
ALL
S
TREET
B
y late October 1943, Friedrich Schwend had been placed in command of distributing the Bernhard notes, which he was able to accomplish almost as fast as Krueger’s men could print them. Whenever Schwend needed more, he would cable Berlin for
Stahl
(steel), later changed to
Schrott
(scrap metal). If he requested 1 kilogram of steel or scrap, that meant £1,000; and 1,000 kilograms equaled £1,000,000, the maximum permitted for each shipment. Whatever sum was shipped to Schwend was debited against his account, less commission, although the bookkeeping was really notional, as his account was kept in Bernhard pounds and not real money. Schwend’s nominal debt was then reduced as he delivered gold, diamonds, jewelry, raw materials, food, weapons, and many other items as disparate as they were useful to the Reich’s war effort. The distribution network carried its own code name, Aktion I.
Schwend’s gross commission was one-third the face value of all notes converted by his network. In exchange, he agreed to absorb all losses from confiscated notes or theft by his own agents. Their commission was 25 percent. That left Schwend a net 8 1/3 percent of the total, which does not seem like much, but no Wall Street underwriter ever did better. By offloading the risks to his agents, he was able to skim a steady flow in commissions for himself. This, of course, was quite separate from the gold and gems he could steal for himself, or the money he could pocket by sharp practice, either in arbitraging foreign exchange or simply kiting the price of goods shipped to Germany for credit to his account.
The cover story that concealed the origins of the money from Schwend’s own agents as well as from their victims was simple: The pounds had been taken from the vaults of occupied countries or captured from British troops. This convenient fiction worked because the real extent and nature of the operation lay beyond imagination. Records in the SS administration showed that Berlin sent Schwend at least 6 million Bernhard pounds, or about $24 million. This was a huge sum at a time when even an inhabited monastery could be bought for Schwend for a mere 1 million lire, or £2,000, using his leverage as the agent of an occupying power. Private citizens fared worse. To store his loot, Schwend seized an eleventh-century castle near Merano, Italy, from its owners, who never received a pfennig
.
This was Schloss Labers, below the Brenner Pass and just across the Alps from Austria, in the friendly German-speaking Tyrol that was only nominally Italian.
Schwend’s money-laundering network of about fifty agents and subagents operated mainly in areas radiating out from Trieste, once the Mediterranean entrepôt of the now-defunct Austro-Hungarian Empire. Their activities stretched hesitantly up toward the Low Countries into the great German port of Hamburg, though Schwend tried to avoid the German heartland, lest the Reichsbank get stuck with the fake pounds (although that occasionally happened, too). He was brevetted a commando staff major in the Wehrmacht’s famous Panzers, although he wore civilian clothes. Schwend also assumed the
nom de crime
of a predecessor, Dr. Fritz Wendig, an SS officer who had just been killed.
Schwend stationed his five principal agents in Switzerland, Italy, Belgium, Holland, and Yugoslavia. At least two of the more prominent money-launderers were Jews. Wilhelm Hoettl boasted later that recruiting “did not rely on ancestry so much as competence” but admitted much later what was obvious: Schwend preferred Jews as front men because they would be less likely to be suspected as Nazi agents and therefore more successful passing the false pounds.
One Jewish agent was Georg Spitz, raised in the United States before moving back to his native Vienna, where he dealt in carpets and the decorative arts as a cover for swindling. His prewar specialty was passing fake American Express traveler’s checks, for which he was sent to prison at the age of twenty-nine. The other was Yaakov Levy, a successful jeweler and art expert in prewar Breslau and then Berlin. Forced to flee with his wife and stepson, he first landed in Switzerland but was turned out of the country as a suspected German agent. He turned up in Budapest with a Dutch passport in 1940, posing as a representative of the International Red Cross under the name of Jaac van Harten. How he got his passport he never said, but most likely he bribed some official.
Van Harten and his family passed four years living in high style on the fashionable Pest side of the Danube and entertaining members of the Hungarian elite in a grand apartment graced by fine paintings, some possibly taken from Jews at forced sales or in exchange for Red Cross papers. His dinners maintained the standards of Budapest’s formidably rich cuisine throughout the war. When Jews came to dine, his wife, Viola, who had been a sculptress in Berlin, never failed to remind them that she was a relative of the Schocken family, publishers who were an ornament of Germany’s Weimar culture. Van Harten’s business front was Transkontinent Import Export, situated in a luxurious office on Budapest’s best street. He claimed the company dealt in medicines, resins, and vegetable oils, and perhaps it did. But he certainly distributed Schwend’s counterfeit pounds, of which there was no shortage on the Budapest black market.
After the Germans brought down their uncooperative Hungarian puppets in 1944 and occupied Hungary on March 19, van Harten prospered even more as financier and art appraiser for Obersturmbannfuehrer Kurt Becher. A businessman’s son smartly turned out as a cavalryman, Becher ran the commission that purchased arms and horses for the SS’s own armed troops, the Waffen-SS. In the process he befriended rich Hungarian Jewish businessmen and incidentally provided cover for van Harten, who now styled himself a baron and was even called in to authenticate a Frans Hals painting destined for Himmler.
For Hungary’s prosperous Jewish community, this final year of the war was a historic moment of betrayal, escape, and downright dirty dealing. They had been spared Hitler’s wrath until the collapse of the Hungarian Fascist regime; thereupon Adolf Eichmann arrived to complete the murderous task the Hungarians (like the neighboring Bulgarians) had refused to perform. Rudolf Kastner, the head of the Jewish community, was permitted to ransom a thousand Jews and send them to Switzerland in a sealed train, an act of bold heroism or rank favoritism, depending on who was among those saved or left behind. Eichmann also tried to negotiate an exchange of a thousand trucks for Jewish lives, a trade that fell through and may or may not have been supported by the Jewish Agency, the semiofficial organization of Palestine’s Jews. Becher offered up Jews, promising more later, in exchange for money but especially for testimony that would help exonerate him after the war. All these and many similar events, the details of which will forever remain in dispute, arouse angry passions to this day.
Van Harten was wheeling and dealing with the rest, and some later regarded him as a hero. But his deals caused surprising leaks in Schwend’s money-laundering pipelines. Late in 1944, seeing the handwriting on the wall as clearly as Becher, van Harten got in touch with Peretz Reves, a young Jewish underground leader. He confided that he was a Jew and offered his help. Reves led van Harten to a shelter holding two hundred children and their mothers, and van Harten organized supplies for them. The next time they met, van Harten offered money in British pounds. The contribution was worth about $50,000 at the time, but there was a catch. Reves had to sign a statement, with two witnesses, pledging that the Jewish Agency would reimburse van Harten after the war. Since the underground leader had little hope of escaping the Gestapo dragnet, he signed without hesitation.
The Jewish underground then passed the pound notes to Becher as protection money for Budapest’s Jewish ghetto. It was only later that they learned Becher’s payoff had been counterfeit, an irony that gave them great amusement in dark times. Reves last saw van Harten in December 1944, fleeing Budapest a day ahead of the Russians. One of van Harten’s suitcases dropped and broke open as it was being loaded into his huge car. Out spilled a large amount of jewels and British pounds that were quickly scooped up, and the car sped off for Schwend’s castle in Merano.
Georg Spitz, Schwend’s other Jewish agent, had first become entangled with the SS by trying to buy his way out of Germany on the claim that he was only half-Jewish. This eventually led him to Schwend, who helped him obtain a clean passport — one not stamped with a
J
for
Jude
— so that he could make half a dozen trips to Belgium and Holland. Sometimes he was accompanied by Schwend’s sidekicks and at least once by Schwend and his wife on a trip to Amsterdam. By Spitz’s own account, he spent 600,000 reichsmarks on foreign currency, gold, jewelry, carpets, and paintings. That would work out to roughly 30,000 Bernhard pounds at the nominal wartime rate of exchange. He questioned the validity of only seven of the pound notes, but SS men examined them under a quartz lamp and declared them genuine. Although Spitz would later claim he was pressured by Schwend, he was extraordinarily industrious for someone supposedly operating under duress.
Spitz worked through Alois Miedl, a German businessman long resident in Holland who was known for such schemes as trying to supply wood to Germany by offering to buy up the coast of Labrador in Canada. After the German blitzkrieg of 1940, Miedl inveigled his way into control of Amsterdam’s Buitenlandsche Bank and the business of Jacques Goudstikker, Amsterdam’s most flamboyant prewar art dealer. Goudstikker threw parties at his country castle and counted the American millionaire publisher William Randolph Hearst as one of his clients. As a Jew, Goudstikker fled to England but fell into an open hatch during a shipboard blackout and died. Taking over his art dealership, Miedl became the confidant of Goering and purchasing agent in the wholesale Nazi looting of Dutch masters and genre painters that had adorned the walls of prosperous Dutch merchants for three centuries. Because of the Reichsbank’s currency controls, this huge stock of art had been out of the Nazis’ reach until 1940. Now they printed overvalued occupation florins and scooped up thousands of pictures at bargain prices from the conquered and impoverished Dutch. With the economy of the Reich sealed off from the world, fine art was almost as internationally valuable, if not as transportable, as gold, which partly explains the greedy Goering’s maniacal art dealings.
By the time Spitz arrived on the scene, most of the best art was already gone, but he used Schwend’s counterfeit notes to buy lesser works, which nevertheless had their uses. The continuing Nazi demand drew forth skillfully forged Dutch masters, most famously by a failed Dutch artist named Hans van Meegeren, whose Vermeer fakes were snapped up by the unwitting Nazi hierarchy. One of them, painted in his studio and aged like the others in his kitchen stove, was
Christ with the Woman Taken in Adultery.
Miedl offered it to Goering in September 1943 with a dubious provenance and at a steep price. Goering dickered and finally forced Miedl to accept 150 second-rate pictures in exchange. Few, if any, records remain, but it seems likely that Goering’s castoffs were part of some of Spitz’s deals involving Bernhard pounds. Miedl finally fled to Spain with his Jewish wife and held on to a comfortable portion of his gains. Van Meegeren was exposed after the war but escaped with the slap on the wrist of a year in prison (never served because of illness) and wide international acclaim for stinging the Nazi plunderers.
Heavily concealed by the fog of war and therefore operating in his own element of international financial anarchy, Friedrich Schwend succeeded in a confidence game of magisterial proportions, passing more counterfeit money than anyone in history. In his principal area of operations, Yugoslavia and northern Italy, government and indeed all public order had collapsed. In 1943 and 1944, partisans fought the occupying German troops and each other. Those who accepted Schwend’s false pounds desperately wanted the currency of what increasingly looked like the winning side. They could not simply go down to their local bank, assuming a bank was operating at all, and ask whether the five-pound note they pushed under the bars of the teller’s cage was the real stuff. In German territory, they could have been shot simply for possessing the bills, and for those who reached neutral Turkey or Switzerland, the banks sometimes got it wrong.
So the notes churned across southern Europe in exchange for scarce food and consumer goods. The pounds were preferred to reichsmarks, although they were actually worthless. In Italy, as the pint-size military hero Marshal Pietro Badoglio took over the government late in the summer of 1943 and made peace with the invading Allied forces, new currency was issued at 400 lire to the pound. This was twice the rate of the lire issued by the Nazi puppet state in the north. The Badoglio currency was smuggled to occupied territory, whereupon Schwend bought up the Allied-backed lire from the south with bales of forged pound notes. He then exchanged it for valuables in the north. There, the starving Italians calculated prices in more expensive lire, which Schwend had, of course, obtained for half the price in the south. (If this seems complicated, imagine how opaque it was to the Italians, who ended up on the wrong side of the deal, and also consider how easy it was for Schwend to bilk them.) The goods Schwend swept up even included, according to Wilhelm Hoettl, a rotting Portuguese yacht offering a neutral flag of convenience under which to conduct business. Schwend was moving faster and to more effect than even the legendary American spy chief William J. Donovan, who had already proposed to Roosevelt that the OSS print millions of lire and air-drop them on Italy, accompanied by propaganda loudly warning that Mussolini’s money was worthless by comparison. (All espionage masters come up with imaginatively wild ideas from time to time or they would be unworthy of their positions, but this was one that literally never got off the ground.)
The counterfeit pounds were also hidden by their unsuspecting new owners in closets, caves, and castles. Apart from the vaults at Schloss Labers, which stood at the head of a beautiful valley of orchards and vineyards sloping down toward his base in the town of Merano, Schwend maintained storage depots for arms, clothing, food, and other strategic goods not immediately put to use by SS forces. Other supplies, especially modern arms, went to Nazi commandos, including Otto Skorzeny, Hitler’s favorite for his daring exploits. Schwend estimated that 30 percent of the guns he handled were of English, American, and Russian manufacture. He even organized the shipments himself, boasting after the war, in a letter to the East German writer Julius Mader, that he had put together three or four trains of ten to twelve boxcars, and “most of the weapons came from the retreating Italian Seventh Army.” But apart from bribes probably given to Italian commanders, how much Schwend actually paid for this detritus of war is lost to history. Leaderless Italian troops often allowed themselves to be disarmed, and the Italian generals turned over their equipment to the new and far more fierce occupiers.