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.
W
HAT THE
P
OUNDS
R
EALLY
B
OUGHT
W
hat 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 steep 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.)
Because of classic intelligence compartmentalization, Kolbe did not know Cicero’s identity; probably only Moyzisch did, or at least had a good idea of the identity of his precious source. Dulles told Roosevelt that the Germans had penetrated the president’s recent discussion with Churchill about using Turkish airfields. For his part, Churchill wondered whether Sir Hughe had inadvertently let something leak. The British Foreign Office’s chief of security and a Scotland Yard detective descended on the Ankara embassy in January and questioned all personnel. Security was declared grossly deficient, but Bazna hardly figured in the investigation. He seemed too obsequious and unlettered to fall under the suspicion of the visiting grandees, who were looking for a professional spy. On their orders, the ambassador’s safe was fitted with an alarm. Bazna quickly figured out how to disable it by pulling the fuse to the electricity supply. The British secret service planted a fake document in Snatch’s safe, “Peace Feelers from Bulgaria,” complete with the forged signature of Foreign Secretary Anthony Eden, but Cicero never took the bait, moving more cautiously when he resumed his clandestine photography, and finally giving up in March 1944. He tried to squeeze one more payment out of Moyzisch for the details of the embassy’s new alarm system, but no sale.
During his brief but spectacular career as Cicero, Elyesa Bazna had produced negatives of between 130 and 150 British telegrams classified as Secret and Most Secret, for which he was paid about £300,000. That was a fortune at a time when an upper-middle-class family man in England could maintain a comfortable establishment with servants on an income of £1,000 a year. Bazna spent with some abandon on mistresses but prudently kept most of the money flattened under the carpet in his servant quarters, then transferred it to a bank vault. After a decent interval he resigned from the embassy and dropped from sight. He was never identified as Cicero during the course of the war.
For their money, the Nazis received about what they paid for in fake currency, which is to say not much. Von Papen could use knowledge gleaned from Knatchbull-Hugessen’s dispatches to inform his own diplomacy with the Turks, but not too obviously, lest he arouse suspicion. The pilfered dispatches did provide reassurance that Britain was making no progress in persuading Turkey to enter the war, and this could have been of military value if properly used. General Alfred Jodl, chief of German military operations, recorded in his diary early in 1944 that “results from Cicero” convinced him his eastern Mediterranean flank was safe from British attack. Germany therefore could move divisions from the Balkans to Western Europe against the invasion everyone knew was coming soon. (The invasion code name, Overlord, did slip out of one dispatch but without the essential clue of where and when it would be launched.) Hitler was not as convinced as Jodl because the dictator had himself been left in doubt whether Cicero’s information was genuine by the turf battles raging among his own intelligence agencies. By the time Hitler agreed that it was safe to move the Balkan divisions to the west, it was too late. Cicero’s dispatches might also have provided Germany’s code-breakers with a mother lode of cryptanalytical data, but they proved useless because the British used one-time pads to change the key in every transmission. So, wrote the espionage historian David Kahn, one of history’s greatest spies “did not — could not — fundamentally alter the course of events.”
While Cicero was Operation Bernhard’s last hurrah, the activities of Friedrich Schwend’s distribution network grew more frantic. One of the money-launderers in Bratislava buried his stock of counterfeit bills in the garden of a friend’s house and made a dash for Prague on April 11, 1945, leaving Bratislava one day ahead of the Russians. SS headquarters in Munich, which was much closer to the dirty deals, came to believe that Schwend’s men were skimming large amounts to salt away money and gold for themselves. Wilhelm Hoettl regularly crossed into Switzerland, and his colleagues said he deposited money there for his chief, Ernst Kaltenbrunner.
Because of the Nazis’ unbridled greed in flooding south-central Europe and the Balkans with fakes, pounds had become deeply suspect currency. By 1944, the total production of Bernhard counterfeits amounted to 13 percent of the £1 billion worth of real notes then in circulation. Even if only half those forgeries were actually distributed by the SS, at least one pound out of twenty in circulation would have been false. If they had circulated widely in the British Isles, such a high proportion of fakes certainly would have been enough to grind, if not completely strip, the financial gears of the British economy. (In those days virtually no worker had a checking account, and most shops dealt in cash; credit cards were unknown.) But the British public had been warned by their newspapers about large-scale German counterfeiting, and the forgeries circulated most widely on the embattled Continent, especially in the Mediterranean basin and Hungary, where the proportion of fakes was far higher and the pound even more deeply suspect.