In the summer of 1940 the engravers managed to perfect the plates. Even when their design was enlarged ten times and examined with magnifying glasses for discrepancies, none were found. The experts had created as perfect a forgery as could be made.
  Heydrich then began to study the passing of the forged currency. He soon learned that the only safe way was to people who would normally be in position to handle large amounts of foreign money and thus would not come under suspicion in the various countries of Europe where the British pounds were to be passed.
  In the spring of 1941 the Germans were ready for their last test. They sent an agent into Switzerland with a bundle of British 5 Pound note forgeries. The agent carried a letter from the Deutsche Reichsbank, asking the help of the Swiss banking authorities in discovering whether or not these notes were forgeries. The Swiss examined  the notes carefully for three days, and reported. The notes were genuine, they said. Pretending to be uncertain, the agent asked the Swiss to check witht the Bank of England, to see if the notes had actually been issued by them. The Bank of England certified the notes as genuine. So the way was clear for the Germans to begin their counterfeiting on a vast scale.
  Just as the technical operation was ready, the counterfeiting organization fell apart. Naujocks was found to be mixed up with another German official in illegal gold dealings for personal profit. Heydrich was furious. He fired Naujocks and disbanded his ring. The counterfeiters had produced 500,000 Pound in forged British notes. They had worked against great odds for eighteen months, and in one move the operation seemed to be destroyed.
Five Pounds Counterfeit Notes. 
  Heudrich chose the laboratory man Bernghard Kruger to rejuvenate the counterfeiting plan, and renamed it Operation Bernhard. Kruger was ordered to begin production somewhere near Berlin, and he chose the Sachsenhausen concentration camp. Overnight his organization vanished. His workers deserted - they would not enter a concentration camp, no matter what the reason.
  Kruger had to start all over. He had the plates, paper, some printed notes, and a new complication. After the Germans conquered nearly all of western Europe, the Security Service people had unleashed forged 5 Pound notes on the markets in Paris. The flood of new money had played hob with the French economy. The German Ministry of Economics complained and demanded that the process be stopped.
  As the authorities considered this complication, a retired German businessman named Friedrich Schewend suggested that the forged pounds be used to finance German  intelligence work throughout the world. By this time Walter Schellenberg had replaced Heydrich as head of the security service, and he agreed with Schwend.
  The counterfeiting system would be incredibly complex, involved as it was with the German espionage system. It demanded the use of double agents, dishonest businessmen in neutral and Allied countries, and in countries dominated by the Reich, and even the use of the Chetniks of Yugoslavia, who sometimes got arms from the British and Americans and sold them to the Germans for forged British pounds.
  Some of the forged money stuck to the pockets of agents. Their forged bought Swiss francs, then they converted these into diamonds or to numbered accounts in Swiss banks.
  By 1943 the counterfeiting operation was in full swing, reaching down into Italy. The idea of dropping millions of pounds on Britain had disappeared from everyone's mind. It was too complicated. If the Germans did this to the British, the British would leave no stone unturned to reciprocate, and the German currency was far easier to duplicate successfully than the British pound. But by using counterfeit British pounds to finance an expensive overseas espionage system, Schwend estimated that the secret service could have an independent income of 250 million Reichsmarks a year, and in the end the British would pay the bill. The thought pleased the Germans.
  At Sachsenhausen the order came: more production. Forty prisoners who had experience as engravers or printers were promised good treatment if they would work to produce the notes. This operation was so secret that these men were confined to a special area of the camp.
  As for the passing organization, Schwend undertook that task on a strictly business basis. He guaranteed that he would finance the sales organization and operate at his own risk, for a share of the profits. He employed a chief agent who took 25 percent and split that whit the passers. Schwend took 8.33 percent - and estimated that this would bring him  83,000 Pound a month personally.

Fifty Pounds Counterfeit Notes.
 Soon the demand for counterfeit pounds was greater than the supply. Schellenberger asked for the production of 50 Pound notes. Kruger objected. If they produced such large notes, he said, something was bound to go wrong. They could not control the serial numbers of the legitimate notes. Bankers were much more likely to check serial numbers on large notes. what if someone found that he had two notes with exactly the same serial number? Obviously then someone would smell a rat. The word would soon be out through the underworld - and the whole counterfeiting program might collapse.   Still the demand was so great that Schellenberger insisted that the 50 Pound notes be produced ; so they were.
  Three qualities of notes were used. Only those of the first quality (and they were examined a dozen times) would be used by German agents in enemy countries and German businessmen in neutral countries. These notes defied detection by anyone except a British treasury agent. Second-quality notes were used for collaborators in occupied countries (which shows what the Germans thought of them) and for black-market operations. Third-quality notes were kept for small deals with unimportant people.

To Be Continued.

Source:Edwin P.Hoyt.


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