Krueger's Men Page 14

  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.

  In his letter, Schwend further described his operations:

  [In Trieste] I had a nice cache of arms and merchandise, even railroad shipping facilities. In addition, I also had eight trucks. Soldiers coming from Russia, the East, Poland, and Romania could use them as needed. My trucks could change numbers at will. The soldiers served in civilian clothes. Uniforms were worn very seldom.

  The organization became much bigger in Merano, where I had three big rooms near the city, I believe near the racetrack. Here, we put together and sent off a train every fourteen days. We had more modest successes in France, Holland (with the help of Miedl and Spitz) and Denmark. You know already how we managed to get the bills out of there: transporting race horses and oat bins with secret compartments… We were able to get everything that was in short supply during the war… from U.S. jeeps to bottles of iodine. My people did not work [together] in chains. So nobody was able to squeal on another.

  The elements of Schwend’s organization would do credit to today’s multinationals, to say nothing of his own array of identities: Italian passports in the names of Wendig and others; Spanish, Portuguese, Egyptian, and several South American passports. All his papers were genuine and obtained by bribes, probably paid in forged pounds. He also carried a partisan laissez-passer, and Hoettl counted it a great pity that this “unique collection” of documents was later destroyed. Schwend’s management team and senior agents were also uncharacteristically diverse for a Nazi agency. His closest associates included Rudolf Blaschke, his early partner who often drank himself into a stupor lasting several days, and Rudi’s milder brother Oskar. Georg Gyssling, the former consul general in Los Angeles, was Schwend’s chief adviser, especially on art. (Gyssling had been brought back to Berlin in an exchange of diplomats but was suspected by the Nazis of Allied sympathies, whereupon Schwend had him transferred to his own service in Italy.) Trusting virtually no one, he put his wife’s brother, Dr. Hans Neuhold, in charge of the group’s books. Another adventurer was Louis (or Aloys) Glavan, in Schwend’s words a man “of strong character, decisive, cunning, and a trader by profession.” Of indeterminate nationality but Slavic background, Glavan owned ships and moved goods from one country to another, thus obtaining common items such as cloth, uniforms, and arms for the SS and selling them for high profits in places where they were most needed.

  The two ships in Schwend’s service were the Genoa and the Trieste, plying the Mediterranean with pound notes hidden inside their engines in asbestos-lined compartments. Reginald G. Auckland, a propaganda-leaflet specialist serving with the British army in Tunisia, was offered a wad of five-pound notes in Bizerte in exchange for a single pack of cigarettes. Instinctively realizing that something had to be wrong with such an uneven trade, he refused. When Auckland learned later about the Bernhard notes, he was annoyed that he had passed up these high-value collectibles. He also realized that the canny merchants of the Tunisian souk must have figured out very quickly how to distinguish a counterfeit pound from a real one. He never divined their secret.

  The most meticulously organized network seemed to exist in Germany itself, with local companies as fronts, but it also did the least business because its members feared the German police. Some were arrested, and Schwend could not help them get out of jail. Occasionally, unsuspecting businessmen were dragooned into handling the Bernhard pounds. Some succeeded in shaking themselves loose; others did not. Johnny Jebsen, a Danish double agent working for the British in Lisbon under the code name Artist, was asked by his SS contacts in 1943 to exchange dollars for pounds that were said to have been taken from bank vaults in occupied Paris. He swallowed the story at first and introduced the SS to a Greek who lived by trading foreign currency on European black markets. The Greek money-trader changed some in Switzerland without incident. Both Jebsen and the Greek trader continued changing pounds (and earning commissions).

  Some months later, another Swiss bank spotted the notes as counterfeit, and both Jebsen and the otherwise unidentified Greek stopped dealing in them; the Greek even took a loss on the few left in his portfolio. The Gestapo later arrested the Greek on a charge of espionage, probably trumped up in reprisal for his refusal to continue dealing in false pounds. Jebsen himself was protected by his high Nazi contacts and managed to back out of the business. He even claimed he had warned German diplomats in Lisbon not to touch the notes that arrived in Himmler’s envelopes from Germany. Eventually, however, he paid with his life for challenging the Gestapo. The fate of these two showed how poisonous any association with the Bernhard notes could be, except
, of course, for those back in Block 19.

  Chapter 10

  WHAT THE POUNDS REALLY BOUGHT

  What did the output of Krueger’s money factory and Schwend’s money-laundering network actually buy for the German war machine? There is no doubt that it purchased raw materials and gold, although no one knows how much, at a time when Germany was on the defensive. The Bernhard bills also played an important role in reinforcing SS troops in the Balkan theater. Lightly armed as police battalions, the SS was distrusted by the Wehrmacht, which refused to issue heavy weapons to a force loyal only to the fuehrer. Schwend provided heavy weapons from the Yugoslav partisans, who were soldiers of soft loyalty or Communists badly harried and often tempted to head for home.

  The pounds generally did not finance SS spies when they were sent out from Germany by Walter Schellenberg’s parallel espionage service; the bills were used instead to pay off the Nazis’ foreign agents, although to little effect. The British captured, executed, or turned every Nazi spy landing on their home islands. Those allowed to live did so on the condition that they feed Berlin a ration of deliberately misleading information supplied by a committee of twenty British counterespionage officials whose operation was known from its designation in Roman numerals as the Double Cross. The reason Schellenberg hardly ever permitted his own agents to carry counterfeits was that the false money, if detected, might endanger missions that were already dangerous enough. The Bernhard pounds did underwrite some of the war’s most oft-told tales, which upon closer examination turn out to be considerably less effective than advertised. Few were more stirring than Otto Skorzeny’s rescue of Mussolini, which happened with fanfare orchestrated by Hitler himself. After Badoglio surrendered on September 8, 1943, the Italian marshal high-tailed it out of Rome the next day and simply ignored his armistice pledge to turn over Mussolini to the Allies. Defeated and deflated, the Duce was confined to a ski lodge in Gran Sasso, a winter sports center in the mountains only 75 miles from Rome. It was accessible by a road and ski lift under complete control of German forces. Rescuing him would have been no more complicated than organizing an armed column of mountain troops to make its way up through the Abruzzi and overpower Mussolini’s guards, whose loyalties were uncertain.

  What was certain was that Mussolini did not want to be rescued. He had already tried to save his regime by a ridiculous attempt to broker a separate peace with the Soviet Union so the Axis powers could concentrate their forces on defending Italy. Suffering from ulcers and feeling betrayed, Mussolini was through with politics. But Hitler had other, symbolic uses for his former model, later his sidekick, soon to be his prisoner. The fuehrer ordered Skorzeny, his favorite commando, to land gliders on the mountain terrain with enough men to seize Mussolini. Far from having to pay partisans forged pounds to locate and help abduct him (as Hoettl claimed), Skorzeny shared a flask of wine with the colonel in charge of the Italian guard while troops packed their corpulent prisoner into a light plane. Skorzeny joined him and the pilot, the three barely clearing the ground in what was touted worldwide as a sensational getaway.

  Landing at Rome, Mussolini demanded to join his family in the countryside but was whisked north to Vienna, Munich, and eventually Hitler’s Wolf’s Lair in East Prussia. There he was ordered to become the figurehead leader of an “Italian Social Republic,” a political false front for the German military occupation of the northern half of the Italian boot. The Wehrmacht’s generals resented this maneuver lest it prove a rallying point for royalist Italian officers. The mere existence of this puppet government did in fact serve to intensify a civil war in the north of Italy, though Hitler got what he wanted: an excuse to stop supplying Ruhr coal to a defeated ally, and a captive labor force including hundreds of thousands of Italian troops who now were regarded as prisoners and could be drafted to work for the Reich. As for Mussolini, his enforced return to politics cost him his life. In the final days of the war, partisans publicly strung up his body ignominiously by the heels in Milan’s Piazzale Loreto, leaving him hanging naked alongside his mistress.

  Several hundred thousand Bernhard pounds did play a role in financing Cicero, the central figure in the best spy story of the war. In the middle of 1943, Elyesa Bazna, an Albanian Turk who had been briefly jailed as a juvenile delinquent, then later worked as a driver, was serving as the valet to the British ambassador in Ankara. Even as a kavass (servant) to such a distinguished foreigner, Bazna labored under a social stigma. He later admitted that his intense frustrations in trying to escape his dead-end position at the age of thirty-nine stoked “an obsessional greed for money.” His employer, Sir Hughe Knatchbull-Hugessen, occupied a strategic position in wartime diplomacy. It was only natural for someone with such a preposterous name to be known to friends since his school days as “Snatch.” The German ambassador to Turkey, Franz von Papen, a smooth politician who had helped grease Hitler’s path to power, was as unflappable as his British rival but better acquainted with espionage, having been expelled from Washington as a German military attaché during World War I.

  Snatch’s instructions from Churchill were impossible to fulfill: bring the implacably anti-Russian and determinedly neutral Turkish government into the war on the Allied side. Failing that, he was to lever Turkey away from its traditional German commercial partners or at the very least to obtain refueling rights at Turkish airbases for the fighter escorts on the Allied bombing runs over Hitler’s Balkan oilfields. Von Papen’s task was simpler: block the British however he could.

  Bazna, the prospective spy, momentarily filched the keys to the ambassador’s safe and dispatch box from his bedside table as Sir Hughe bathed, then quickly made wax impressions to create a duplicate set of keys. He also obtained rods to construct a stand for a camera and a photographic light. They were concealed in his servant’s room as rods to hang clothes and curtains, an arrangement he had perfected while working for a German businessman-turned-diplomat who later fired him for prying. Sir Hughe, a diplomat of the old school, of course never bothered to inquire into the checkered past of his valet, who was nondescript except for a receding hairline and a neatly trimmed mustache, spanning the width of his mouth in the local fashion. The ambassador assumed this person who barely understood English (their brief, purely utilitarian exchanges were conducted in French) was only slightly less important and no more dangerous than the wallpaper. A member of the embassy staff had slightly more sensitive personal antennae but nevertheless disdained Bazna as “a clever idiot, suave and always trying to put a fast one across somebody.”

  Having filled three rolls of film with photographed documents while the ambassador was away from his private quarters, Bazna approached his German contacts by telephone on October 26, 1943. Von Papen, acting on the quite reasonable supposition that a walk-in who peddled his wares by phone was either a fool or a plant, refused to let him bother the local Abwehr agents. That was the prospective spy’s first stroke of luck, for Wilhelm Canaris’s Abwehr was almost crippled by anti-Nazis who soon would have betrayed him. His next lucky break was von Papen’s decision to dump him into the lap of Ludwig Moyzisch, a former Austrian journalist who was Schellenberg’s agent at the embassy and the one Nazi in Ankara with virtually unlimited foreign funds. Bazna, who had no idea how long he would have access to the ambassador’s locked safe, decided to go for broke on the first try. He demanded £20,000 for two rolls of film.

  Copies of secret British documents stolen from the ambassador’s bedroom safe by his valet were so illuminating that von Papen code-named the spy Cicero after the eloquent Roman orator.* He never knew Bazna’s real name. The photographed documents were flown to Berlin, where tortuous bureaucratic rivalries soon were played out over their credibility. An astounding argument came from Foreign Minister Joachim von Ribbentrop, one of the great political cynics of the twentieth century; he of all people found it difficult to believe Cicero’s motive was purely financial and totally lacking in ideology. In due course Moyzisch received authorization to meet Bazna’s stee
p price. The first payment came in real pounds supplied by the German Foreign Office, thus keeping von Papen in the bureaucratic loop and making the secret documents available to him. Bazna insisted on small bills, and the initial reward was so bulky it had to be wrapped in a package covered by newspaper. The next payment, in counterfeits, was fixed at £15,000. The payment thereafter was cut to £10,000 for each delivery, probably to limit the circulation of Bernhard pounds lest a glut yield their secret. Bazna became Schellenberg’s proudest prize inside the snake pit of Nazi espionage. Once, he asked to be paid in Turkish lire and some diamonds, which Moyzisch arranged with some difficulty. Bazna had no reason to suspect that his usual compensation might be bogus, since none of the Nazis in Turkey, with the possible exception of Moyzisch, were aware of the German counterfeiting operation.

  Cicero continued delivering films without interruption for almost three months until an alarm was sounded from a totally unexpected source. Allen Dulles, America’s wartime master spy in Europe and later the head of the Central Intelligence Agency, had a source in the German Foreign Ministry named Fritz Kolbe, who was the polar opposite of Bazna. A committed anti-Nazi, Kolbe made courier runs from Berlin, bringing secret papers to Dulles at his base in Switzerland. In mid-December 1943, he delivered irrefutable evidence in the form of a Cicero dispatch. Dulles quickly contacted his British counterpart and warned him of an undetermined leak in Britain’s Ankara embassy. (The British, smug as ever, had rebuffed Kolbe well before Dulles took him on.)