Krueger's Men Read online

  Copyright © 2006 by Lawrence Malkin

  All rights reserved. Except as permitted under the U.S. Copyright Act of 1976, no part of this publication may be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

  Back Bay Books / Little, Brown and Company

  Hachette Book Group USA

  237 Park Avenue, New York, NY 10017

  Visit our Web site at www.HachetteBookGroupUSA.com

  First eBook Edition: March 2008

  ISBN: 978-0-31602-916-2

  Contents

  Author’s Note

  Major Characters

  1. Attack the Pound the World Around

  2. Operation Andreas

  3. Whitehall and the Old Lady

  4. Nobel Prize–Winning Ideas

  5. The Counterfeit Chain of Command

  6. Ingathering of the Exiles

  7. The Counterfeiters of Block 19

  8. “The Most Dangerous Ever Seen”

  9. Better Than Wall Street

  10. What the Pounds Really Bought

  11. The Dollar Deception

  12. Toward The Caves of Death

  Epilogue

  Notes

  Bibliography

  Appendix

  A Note on Sources

  Praise for Lawrence Malkin’s

  KRUEGER’S MEN

  The Secret Nazi Counterfeit Plot and the Prisoners of Block 19

  “A story of survival and intrigue with heroes, villains, and suspense worthy of the big screen.… Lawrence Malkin does a great service to bring this remarkable, little-known episode of World War II to the world’s attention.”

  —Douglas R. Cobb, CurledUpwithaGoodBook.com

  “An astonishing and exciting tale. The drama of how the Nazis mounted a complex counterfeiting operation inside a concentration camp is matched by the chilling life-or-death saga of the prisoners involved. It reads like a thriller, but it’s all true.”

  —Walter Isaacson, author of Einstein

  “Lawrence Malkin has written a hard gem of a book, just big enough to be respectable and sparkling enough to impress.”

  —Roger K. Miller, Tampa Tribune

  “Bravo! Lawrence Malkin’s Krueger’s Men is part tragedy, part farce, part Schindler’s List, and part Good Soldier Schweik.”

  —Karl E. Meyer and Shareen Blair Brysac, authors of Tournament of Shadows: The Great Game and the Race for Empire in Central Asia

  “Lawrence Malkin has written so thrilling, so fascinating, so precise a story of the Nazi counterfeiting of British pound notes that he might just find himself thrown into jail.”

  —David Kahn, author of The Codebreakers and Hitler’s Spies

  “Compelling… fascinating.… Malkin’s tale is as intriguing as it is complete.”

  —Laura L. Hutchison, Fredericksburg Free Lance–Star

  “Talk about being caught on the horns of a dilemma. Salamon Smolianoff, a Jew, was awaiting his fate in a Nazi concentration camp when, in the unlikeliest of ways, he gained a reprieve. Or did he? A secret plan of Adolf Hitler was to bring Britain down by destabilizing its economy. How? By flooding the nation with hordes of counterfeit currency, indistinguishable from conventional British currency. The intricacies of the British pound made this an extremely difficult objective, one only one of the very best counterfeiters could achieve. And so Bernhard Krueger, the SS’s engineering officer designated to head the mission, tracked down Smolianoff from criminal archives, where his work had made him internationally known. But Smolianoff was canny enough to know he was far from out of danger. Should he succeed in the Nazi mission and help Germany win the war, he remained a Jew. Why wouldn’t Hitler send him back to the gas chamber? And if he failed in the attempt, he’d likely be sent to the same place. The denouement of Krueger’s Men is a ripping good read.”

  —Steve Goddard, Historywire.com

  “A remarkable, little-known story… deeply researched and tautly narrated… gripping.”

  —Publishers Weekly

  “Compelling.… Thorough research and authoritative voice enable this fascinating chapter of history to hold interest. Gripping proof that indeed all is fair in love and war.”

  —Kirkus Reviews

  “The astonishing and hitherto hidden story of how the Nazis tried to ruin the British economy by counterfeiting its money. It combines thriller-like reality with unexpected and cautionary insight into the workings — and contortions — of totalitarian government. Fascinating in its documentation, and brilliantly written by one of our best experts on finance and the world economy.”

  —William Pfaff, author of The Bullet’s Song

  In memory of Paul David Stark

  He brought his family through the storm.

  Endless money forms the sinews of war.

  —MARCUS TULLIUS CICERO, 43 B.C.

  [Nervos belli; pecuniam infinitam. Philippics, V. ii. 5]

  AUTHOR’S NOTE

  In writing this story of wartime deception and individual survival, I set myself the literary challenge of recounting the tale of a counterfeiters’ war in which every event would be true, or at least verifiable. I also wanted to hold the reader’s attention from first page to last. It is for readers to say whether I succeeded, and for scholars to examine the notes verifying the story. They enhance the narrative but are deliberately set apart lest they impede it.

  The usual way out of the fog of war is by pure chance, often assisted by a dash of cunning but only rarely by heroism. This I know from my own experience as an ordinary soldier and my wife’s as a survivor of the foulest tyranny in European history. But while I was working my way through declassified documents and forgotten memoirs, a real war was raging in Iraq. A third element began to emerge, a political allegory for today.

  As the greatest counterfeiting operation in history takes shape, observe how heedlessly it is launched by an authoritarian government. A tightly knit, self-reinforcing group pressed ahead with only the most perfunctory internal discussion. They did not make a careful examination of where the operation might lead or how it might go wrong. The result was a technical success but a strategic flop and, in the crowning irony, an espionage blowback. Contrast that with the vigorous discussion inside Allied councils on whether to wage their own counterfeit war on the enemy. Even the cleverest and most imaginative military plans demand scrutiny through the critical questioning essential to democratic government. How many other wartime brainstorms have come back to haunt their planners, for the very reason that they never thought them through in the first place or listened to those who had?

  MAJOR CHARACTERS

  THE NAZIS

  Wilhelm Canaris, chief of the Abwehr, the traditional military intelligence service.

  Reinhard Heydrich, chief of the Reichssicherheitshauptamt, Hitler’s security service; assassinated near Prague in 1942.

  Wilhelm Hoettl, SS intelligence chief for the Balkans; based in Vienna; Operation Bernhard’s Nazi laureate.

  Bernhard Krueger, textile engineer by training and SS forger by assignment; chief of the operation that bore his name.

  Albert Langer, cryptographer and technical director of the first, unsuccessful counterfeiting attempt known as Operation Andreas.

  Alfred Naujocks, SS brawler and hit man in charge of Operation Andreas.

  Arthur Nebe, chief of the Nazis’ criminal police.

  August Petrich, Nazi commercial printer.

  Walter Schellenberg, SS chief of foreign intelligence and espionage; picked Bernhard Krueger as his chief counterfeiter.

  Kurt Werner, fanatical chief of the concentration camp guards in Block 19.

  PRISONERS IN BLOCK 19
>
  Adolf Burger, printer from Slovakia; author of a memoir about Operation Bernhard.

  Felix Cytrin, toolmaker from Leipzig; chief of the engraving section.

  Peter Edel, young artist from Berlin; his brushes and graphic tools were shipped to Sachsenhausen.

  Max Groen, Dutch newsreel cameraman; organized the prisoners’ cabaret evenings.

  Abraham Jacobson, Dutch printing plant manager and reserve army officer; chief of the phototype section.

  Avraham Krakowski, pious young accountant who wrote a memoir.

  Hans Kurzweil, Viennese bookbinder; chief of the document-forging section.

  Moritz Nachtstern, Norwegian stereotyper; wrote the first and most detailed memoir of the prisoners’ life.

  Salomon Smolianoff, master forger; the only career criminal among Krueger’s men.

  Oskar Stein (aka Skala), Czech businessman; bookkeeper and chief clerk.

  BANKERS, MONEY-LAUNDERERS, INVESTIGATORS, AND ASSORTED RASCALS

  Hans Adler, Viennese expert in tracking and indexing counterfeit currency.

  Elyesa Bazna (aka Cicero), valet to the British ambassador to Turkey; Germany’s most successful wartime spy.

  Basil Catterns, Bank of England official unconcerned about enemy counterfeiting.

  William J. “Wild Bill” Donovan, chief of the Office of Strategic Services, U.S. wartime espionage agency.

  Ronald Howe, deputy commissioner of Scotland Yard; chief of liaison with foreign police and anticounterfeit organizations.

  George McNally, U.S. Secret Service agent; investigated whether Operation Bernhard forged dollars.

  Ivan Miassojedoff (aka Eugen Zotow), prize-winning Russian artist and counterfeiter; passed on his skills to Smolianoff.

  Sir Kenneth Oswald (K.O.) Peppiatt, chief cashier of the Bank of England; during his tenure his signature appeared on every pound note, real or forged.

  Friedrich Schwend (aka Dr. Wendig), chief money-launderer for the counterfeit Bernhard millions.

  Georg Spitz, Schwend’s money-launderer in the Netherlands.

  Jaac van Harten, Schwend’s money-launderer in Hungary.

  David Waley, senior British Treasury official, close associate of the economist John Maynard Keynes.

  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 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 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. 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 perfected 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 serio
us 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.