EARLY ON THE MORNING OF MAY 13, 1945, a fisherman who had just left his house on the shore of Traun Lake in western Austria came pounding back up the stairs.
“Wake up! Wake up, everybody! Come out here! You won’t believe this!”
His half-awake family stumbled into their yard and gazed out at the water in astonishment.
The little lake was totally covered by a gently bobbing blanket of thousands of British banknotes!
Several other fishermen appeared. They ran back to call their families. A crowd of friends and neighbors gathered quickly. Soon hundreds of fully dressed villagers were thrashing about in the lake, frantically stuffing sodden banknotes into pails and baskets. The air was filled with delighted shrieks, gasps, and exclamations.
Some rushed home to dry their money in ovens or on stovetops. Others laid out the bills on the beach and in a nearby field to dry in the sun.
“Where on earth did this money come from?” asked a fisherman. “Somebody must have robbed a bank!” said his wife. “But why are they British banknotes? Why aren’t they Austrian?” a neighbor demanded.
“Never mind all that,” someone pointed out. “The most important question is: are the bills counterfeit or are they genuine?”
The last question seemed easiest to answer. Several people hurried over to the nearby town of Endsee, to the village bank. A cashier tested the sample bill with ultraviolet light and passed it around among her colleagues for their opinions.
Everyone agreed: the bill was genuine.
By this time a squad of American soldiers had arrived at the lake to take control of the situation. Since World War II had ended only a week earlier, most of western Europe was under Allied military occupation. The Americans roped off the area and tried to keep everyone out, but since there were still banknotes floating on the lake, this proved to be difficult.
Despite the soldiers’ best efforts to scoop them out, more and more bills kept floating to the surface. Eventually a fisherman suggested that the source had to be farther upstream. He said the bills were probably being carried into the lake by the Traun River.
The source was soon discovered: a dozen wooden cases filled with banknotes, which had been flung into the river a short distance above the lake. The cases had burst, and were slowly releasing their contents into the swift-flowing current.
But there was also a second astounding discovery—an abandoned German Security Service transport truck near Gmunden, a 20-minute drive farther north. It was filled with 23 similar cases. They too proved to be bursting with British banknotes—hundreds of thousands of them.
This was becoming too big for the local American commandant. He rang up U.S. military headquarters in Germany. Soon radio and telephone messages were flashing back and forth between Frankfurt and Washington, Washington and London. The FBI, Scotland Yard, and the Bank of England were alerted. Forgery experts from all three countries jumped into airplanes and trucks and hurried to Traun Lake to investigate.
It took them years to do it, but what Allied investigators eventually uncovered was Operation Bernhard—the biggest banknote counterfeiting operation in the history of the world.
Operation Bernhard was first proposed to Germany’s Fuehrer, Adolf Hitler, by members of his Security Service (Reichsicherheitsdienst) back in 1939. That was shortly after Germany had started World War II by attacking and seizing Bohemia, Moravia, and Poland.
In response, Britain, an ally of Poland, had declared war on Germany.
Instead of invading Britain, the German Security Service thought they might be able to beat the British more easily by the ingenious method of flooding the world with millions of fake British banknotes. This would have the effect of making Britain’s currency so suspect it would become almost worthless, which in turn would cause the British economy to collapse. With a collapsed economy Britain would no longer be able to continue the war, and this would force her to surrender.
Hitler didn’t much like the idea—he felt the German Reich (Empire) didn’t need to win a war by using such “dishonorable” means—but he agreed to a smaller version of Operation Bernhard. Since he was already planning to attack many more countries (Holland, Belgium, France, Russia, and more), he knew Germany would need a lot of spies. Counterfeit banknotes, he determined, could be used to pay for Germany’s foreign intelligence system—its spies, collaborators, and foreign agents—but nothing else.
The man chosen for the operation—and after whom it was code-named—was Bernhard Krueger, the head of the Security Service’s Forgery Division. This division produced fake passports and other bogus identity papers for Germany’s spies.
Krueger was a little different from the other Nazi officials who ran the Security Service. He was really more interested in typography than politics. He loved the world of printing, and preferred messing around with blocks of type and fine papers to attending endless political meetings. And even though he was as meticulous and organized as the rest of his colleagues, he also had a sense of humor. Some of the other officers didn’t like that very much.
Krueger was eager to get started, but there was an immediate problem: manpower. To get Operation Bernhard rolling he needed dozens of highly specialized craftsmen—printers, composers, engravers, chemists, papermakers, banking experts. Trying to find people of this kind who weren’t already fully employed in the war effort was going to be a huge headache.
Suddenly Krueger had a brainwave. He knew that some of Germany’s brightest and most accomplished scientists were wasting away in the country’s own concentration camps. Why not offer the work to them?
The inmates of these political prison camps were not criminals. The camps were simply the Nazis’ way of getting rid of anyone they considered politically unacceptable—homosexuals, gypsies, political opponents, and especially Jews, whom Hitler blamed for all of Germany’s economic troubles. Here, prisoners were brutally treated, forced to work long hours at hard labor, and kept on starvation rations. The death rate was staggering.
In his proposal to his bosses, Krueger insisted that his workers would have to be given decent accommodation, proper food, and a lot more privileges than was the norm. His superiors were appalled at the idea and grumbled about it for quite a while. However, since there was no other source of such specialized labor for Operation Bernhard, they eventually agreed.
Several hundred men volunteered from throughout the concentration camp system, and Krueger selected 40 of them. About half were Jewish, nearly all were non-German (Czech, Hungarian, Polish, etc.), and only one had actual counterfeiting experience. Krueger gathered them all at Sachsenhausen prison, northeast of Berlin, where he built them a separately guarded compound designated Block 19. This compound had heated rooms, washing facilities, and separate bunks for the workers—unheard-of luxuries compared to regular concentration camp conditions.
Most other concentration camp inmates considered “Krueger’s men,” as they came to be called, outrageously lucky, and most of Krueger’s men felt that way too, but some had mixed feelings about their new job. It was true that if the Germans needed a prisoner’s skills, they weren’t as likely to kill, starve, or beat him. On the other hand, working for Operation Bernhard meant working directly to help the Nazis win the war. Some felt conflicted about that.
It certainly helped that Krueger was a fair-minded, likable man who was interested only in their skills, not their religion, sexual orientation, or political opinions.
But Krueger probably wouldn’t have been able to get away with civilized treatment of his men if Operation Bernhard hadn’t been so top-secret. The secrecy rating of Block 19 was so high that only Krueger, Block 19’s special guards, and the prison commandant knew what the inmates were actually doing in there.
The work they now began involved an enormous challenge. British banknotes were widely believed to be impossible to forge. Their engravings were said to be too complex and intricate to duplicate. After the men had spent several hours carefully examining the various banknotes under a large magnifying table, Krueger offered to make things easier by having them produce only British five-pound notes.
Everyone was relieved.
But when the engravers showed Krueger their first efforts, he shook his head. They weren’t bad, but side by side with a genuine bill they didn’t look the same. They had to look identical—so perfectly identical that they would still appear legitimate even when magnified 20 times their normal size.
The bills had to be so perfect that even the Bank of England would accept them, Krueger insisted. It would be hard—but possible.
Krueger’s men went back to try again.
The papermakers were having problems, too. Krueger had sent several genuine banknotes to a laboratory for analysis, and the lab had sent back a list of the paper’s ingredients, but when Krueger’s men copied it, the result just didn’t feel right. The paper felt too stiff.
Two weeks later Krueger’s phone rang. “We’ve got it!” a papermaker announced. It had been the flax. The flax the British used in their paper came from Turkey.
Krueger ordered his assistant to get some flax from Turkey.
There was an embarrassed silence. “Herr Krueger—Germany is also at war with Turkey,” the man said finally.
Krueger laughed. “How inconvenient,” he said. “We’ll have to smuggle it in. We’ll get some through Italy—call it emergency medical supplies. Or are we at war with Italy, too?”
When the Turkish flax arrived, it definitely helped—but the match was still not perfect.
What could it be? After months of digging, the papermakers discovered that the British use recycled linen in their paper. Krueger’s papermakers had been using only new material.
Krueger was pleased. He ordered his linen sent to nearby factories as rags, with instructions to have them all returned after use and cleaned, then added to the paper mix. That did the trick!
A third problem involved Krueger’s method of aging the banknotes.
Clean, freshly printed banknotes are more likely to arouse suspicion than used, old ones. To age his banknotes in a hurry, Krueger got half a dozen men to fold, crumple, and generally “work” the bills with unclean hands to remove their new look.
That was good, but left one clue—the engravings remained too sharp-edged. In an old banknote, the oils in the ink have soaked into the paper, giving the engravings a slightly blurry outline. A used banknote with sharply outlined engravings didn’t make sense. It might fool an ordinary customer, but not an inspector from the Bank of England. After testing all sorts of chemical combinations, Krueger finally found one that caused his ink to release its oils more quickly. This made his banknotes look several years old after only a few days in the dryer.
They were getting ever closer to success.
Krueger’s final problem was figuring out how to number the bills. All banknotes carry a date, a letter and number designation, and the printed signature of the Bank of England’s Chief Cashier at the time of printing. Krueger had to find out how many five-pound banknotes the Bank of England had issued during the past 20 years, what their designations had been, and whose signature they had carried.
It seemed like an impossible job—but the ministry’s secret agents returned with the correct information in less than two months.
Now it was all systems go!
Two weeks later, an assistant dropped the first batch of 100 carefully dried, instantly aged, totally bogus British five-pound banknotes onto Krueger’s desk.
Krueger picked one up reverently. He held it up to the light, examined it under his magnifying glass from every angle. Then he compared it to a genuine British five-pound note he kept in his desk.
“Perfect,” he murmured contentedly. “This looks perfect. Now for the final test.”
An agent was dispatched to Switzerland (which was neutral in the war) with a small bundle of the fake notes. Following Krueger’s instructions, the agent approached a cashier in a large Zurich bank and handed her the bundle. He explained that he was worried that these bills, which he’d recently received from a client, might be counterfeit. He asked for her opinion.
The clerk asked him to have a seat.
When she returned a few minutes later, she cheerfully informed him that the notes were genuine. There was nothing to worry about.
“Are you quite certain?” the agent demanded. “I have reason to be concerned about this client’s honesty.”
The clerk assured him that she was quite certain. The bank had its own expert on staff, and he had inspected the notes personally.
The agent sighed. “Please don’t be offended,” he said. “I’m about to embark on a rather large business deal with this client, and I would sleep better if his honesty was confirmed at the highest level. Would you be so kind as to forward a sample note to the Bank of England in London? I believe they offer an authentication service.”
The clerk’s pleasant manner vanished. She took back the bundle and told the agent to return in two weeks.
Seventeen days later the clerk handed over a package from the Bank of England.
The banknotes had passed with flying colors.
When Krueger heard the news, he happily ordered his men to start the presses. Immediately. And for the end of the day, to celebrate, he told his assistant to round up some champagne.
His assistant looked horrified. Champagne? In a prison camp? Was Herr Krueger perhaps forgetting that these men were “enemies of the German Reich”?
Krueger grimaced. This was technically true—and Krueger seemed to be the only man in Sachsenhausen who kept forgetting it.
The purpose of counterfeiting banknotes is to try to trade fake notes for real ones. To do this, a counterfeitor might take his fake British banknotes to a bank and trade them for genuine American dollars. Or he might use them to buy valuables such as jewels, precious metals, or art for later resale.
Most counterfeitors print up as many banknotes as they think they can “sell” in a given area (usually a single city, sometimes several cities at once), then hire a small army of agents to dump the entire print run into the money stream at one go—so fast that by the time the banks wake up to the problem, everyone’s long gone. This method is based on the assumption that the forgeries will be discovered quite quickly—which they usually are.
The amazing feature of Operation Bernhard was that the counterfeits made by Krueger’s men were so perfect, and so unlikely to be detected, that the German Security Service could expect to dump thousands of them into the money stream at a time—and keep dumping in thousands more for many, many months, or even years.
Furthermore, Operation Bernhard wasn’t limited to a single city, or even a group of cities. Being a government operation, it had the resources to distribute its banknotes all over the world.
So Krueger proceeded to organize his men into a production line that was soon printing more than a hundred thousand fake British five-pound notes every single month.
To find a salesman who could keep up with that level of production, the Security Service had to go outside its own organization. The job fell to Friedrich Schwend, a self-made German businessman. Schwend had begun his working life as an ordinary garage mechanic and was now a wealthy aristocrat, with mansions, yachts, and bank accounts all over the world.
Schwend was a charmer—tall, elegant, a knockout with the ladies, an enthusiastic sportsman—but above all an extraordinarily smart and efficient businessman. He belonged to the old school, which operated on the premise that in any business deal, both sides should always make a profit. This made him many friends, and assured him of a never-ending supply of customers. He kept agents in over 20 cities around the world, including Rome, Stockholm, Madrid, Budapest, Tangier, Paris, New York, Hong Kong, Amsterdam, Belgrade, and Copenhagen.
With such a network, Schwend had no trouble at all keeping up with Krueger’s rate of production. In fact, it wasn’t long before he was sending him impatient telegrams: NEED MORE BANKNOTES URGENTLY, STOP. MY AGENTS FINDING MANY WILLING BUYERS, STOP. CAN BARELY KEEP UP WITH DEMAND, STOP.
His success wasn’t altogether surprising. First, it was now 1943, and Germany was beginning to lose the war. Its resources were stretched to the limit. Since fewer and fewer countries were accepting German banknotes (Deutschmarks) for business transactions, Schwend was often required—despite Hitler’s original instructions—to use the fake British banknotes to purchase military equipment.
Second, with Germany faltering and England recovering, the British pound was rapidly becoming the most sought-after currency in the world.
Krueger asked Schwend how many banknotes he needed.
“Three hundred thousand,” Schwend suggested. “No, five hundred thousand. I could use a million banknotes if you could print that many!”
Krueger said he’d see what could be done.
“And why bother with five-pound notes,” Schwend continued. “Why not print fifties? It’s the same amount of work.”
“I’ll think about it,” Krueger replied.
The next day, Krueger ordered his engravers to begin work on a British 50-pound note.
By early 1944, Operation Bernhard had more than tripled in size. Krueger had increased its staff to 142 men, and had added a whole new compound, called Block 18, to its quarters at Sachsenhausen prison.
Krueger’s men were now pumping out half a million banknotes per month in British tens, twenties, and fifties.
Despite this, Schwend kept complaining that Krueger’s men were too slow. But Krueger knew that if they printed any faster the quality would suffer—and he hated to release anything but perfect bills. If the quality suffered, the counterfeits might be detected and their agents might be caught.
Schwend wasn’t concerned about that. He told Krueger about what happened to their agent in Madrid. This agent had traded Krueger’s bills for Spanish pesetas, then sent the pesetas to Lisbon to trade them for genuine British notes. When the money got back to Schwend, he discovered he’d been paid in Krueger’s own counterfeit banknotes! “They’re so good, even some of us can’t always detect our own fakes!” he chortled.
Krueger was so pleased by this story that he requested military Good Service medals, 2nd Class, for all his men at Sachsenhausen prison.
The prison officials couldn’t believe their ears. The commandant asked Krueger if he’d gone totally mad. Military medals for prisoners!?
Krueger assured him that he was quite sane. He felt his men had earned them. They were working a lot of extra hours these days. “Please submit my request to the Medals Commission,” he insisted.
Shortly after the men got their medals (which cost Krueger a lot of favors), the commandant complained to Krueger that his men were actually wearing those medals around camp.
Krueger stared at him, perplexed. This was a problem?
Of course it was a problem, the commandant said. It was upsetting the guards. Nobody had given them any medals. They felt Krueger’s men were thumbing their noses at them.
To keep the peace, Krueger asked his men to wear their medals only during the day in their print shops.
By the summer of 1944, banknote production at Sachsenhausen was approaching a million British banknotes per month.
So many Krueger counterfeits were now in circulation worldwide that in some countries—such as Yugoslavia, Bulgaria, and Romania, where Schwend’s agents had been particularly busy—Krueger’s fake British currency had actually replaced the national currency.
In Italy, invading Allied troops were astonished to discover that store owners routinely quoted their prices in British pounds instead of Italian liras.
Even the Bank of England had by now become aware that its money supply had mysteriously grown, but the confusions of a world war and the high quality of the counterfeits made it impossible to do much about it. The bank’s warnings to the forgery investigators of the world’s biggest banks were largely ignored.
As Germany’s armament factories were increasingly destroyed by Allied bombing, the Security Service used more and more of its counterfeit money to buy arms abroad.
In fact, Schwend informed Krueger, for the best deals in weapons, he really should be printing American dollars. American dollars were going to be the next hot currency.
Krueger said he’d have to think about it.
Only three months later—just before Christmas 1944—Krueger’s men began printing a line of fake American hundred-dollar banknotes, too.
And by January 1945, working even more extra hours at a frantic pace, Krueger’s men were producing about 10,000 American counterfeits per month—in addition to their monthly quota of British counterfeits!
But it was too late to make much difference to the Nazi war effort. Germany was crumbling, and the war was almost over. As the Russian army broke through Germany’s last eastern defences and began to overrun the country, panic set in. One morning just before dawn, a group of Nazi SS troops came crashing through the doors of Blocks 18 and 19. “Everybody up! Get dressed! Line up!”
Bleary-eyed, terrified, Krueger’s men stumbled to their feet.
“We want all this equipment smashed!” one of the soldiers ordered. “Anything wooden, burn it. Anything metal, cut it up or smash it. Now move!”
Everyone paled. This had been their greatest fear—the fear that when all was lost, the Germans would smash everything, kill the prisoners, destroy the records, and flee. There were rumors that this had already happened in some of the prisons farther east.
Fortunately, cooler heads prevailed. After a hurried argument, the soldiers decided this equipment was too valuable to smash. “All right! Change of plans! Everything gets packed up! Everything in boxes, cases! Hop to it!”
It took most of the day to load the trucks. They left just before dark in a 14-truck convoy, the men wedged in wherever there was room. It was the middle of winter, a bitter wind was blowing, and no one had been issued a jacket or blankets. The roads were full of refugees and bomb craters.
After three miserable days of almost no food or sleep, the convoy reached Mauthausen concentration camp in northern Austria. Its commandant was surprised and annoyed—he had no room for Krueger’s men, and no rations to feed them. He had barely enough food for his own prisoners.
After an hour of heated negotiations, the men were quartered in the only room left—the camp’s Execution Block. It was a huge, freezing, windowless concrete bunker, its walls pockmarked with thousands of bullet holes—and that’s where an appalled Krueger finally found his men six weeks later, sick, desperately hungry, and demoralized.
Some Gestapo opponents of Operation Bernhard, accusing Krueger of being a “Jew lover” (a crime punishable by death in wartime Germany), had managed to have him reassigned without warning. It had taken him six weeks of struggling with the military bureaucracy to fight his way back to his men.
Krueger immediately arranged for a train to transfer his men out of Mauthausen and into new quarters at the nearby Redel-Zipf prison. Here they were once again provided with heated rooms, running water, and cooking and washing facilities. Relieved, the men began rebuilding their workshop.
But only two months later the American army invaded Austria from the west. With enemy troops closing in rapidly and Krueger unable to get back from a meeting in Berlin, Krueger’s most recent second-in-command, Lieutenant Hansch, decided it was time to shut Operation Bernhard down for good.
The men were called together and ordered to pack up their workshop one last time. Then, according to strict orders from Krueger, they would receive their freedom.
When the last of four large army trucks had been loaded with Operation Bernhard’s equipment, printing plates, and remaining counterfeit bills, army transports were ordered to take the men to nearby Ebensee prison for a handover to the Red Cross. (Two days later the Americans liberated Ebensee, and the men were freed.)
Hansch and his four Security Service trucks, meanwhile, disappeared into the night.
What happened to Hansch and his convoy took Allied inspectors years to unravel.
After most of a night’s traveling over steep mountain roads, one of the trucks broke an axle near the town of Gmunden and had to be abandoned. (This was the truck the investigators discovered soon after British counterfeit banknotes first floated to the surface in Traun Lake.)
Half a day later, a second truck—one filled entirely with counterfeit British banknotes packed in wooden cases—skidded into a ditch beside the Traun River and the drivers couldn’t get it back onto the road. For some reason Hansch decided to dump this truck’s contents into the river. (This truck, since it was still roadworthy, was probably recommissioned by Allied forces a few days later—in any case, it was never found by the investigators.)
The remaining two trucks made it all the way to a military research station near the town of Grundlsee before running out of fuel.
The commanding officer at the research station listened to Hansch’s description of his cargo and agreed that absolute secrecy was called for. His engineers suggested wrapping everything in waterproof containers and lowering them to the bottom of a nearby lake—the Toplitzsee—that the station had been using to test various underwater weapons.
When a witness finally confessed this information to Allied investigators in late 1945, British divers were sent to the lake but found nothing. However, repeated attempts over the next 14 years finally led to success.
A team of German divers located some of the waterproof containers in 1959, producing another king’s ransom in counterfeit British banknotes. To everyone’s amazement, they were still in perfect condition, and were turned over to the Bank of England. More recently, in the year 2000, additional dives turned up even more banknotes and Security Service records.
As for Friedrich Schwend, he spent a brief time in an American prisoner-of-war camp in Germany, then moved to Peru, where he continued his free-wheeling business practices in partnership with various German war criminals. He also engaged in intelligence work for the U.S. Central Intelligence Agency and the Peruvian Secret Service.
Bernhard Krueger disappeared from Germany after he was accused of responsibility for the deaths of six of his men due to illness during his management of Operation Bernhard. The complaints, however, were dismissed. Krueger returned to Germany in 1956 and died there of old age at some point in the 1980s.
As for Operation Bernhard’s counterfeit British and American banknotes, they were never officially withdrawn because they were simply too difficult to identify. This was a first in the history of counterfeiting—not surprising for what turned out to be the world’s most sophisticated and successful counterfeiting scam.