Quantitative Easing was never meant to work like this. This is the story about how a small-time Portuguese fraudster carried out one of the most audacious financial crimes in history and in doing so damaged the Portuguese economy and almost definitely hastened the arrival of the Salazar dictatorship. His efforts also created legal history as well as providing material for a classic economic case study. Not least, this is a great numismatic mystery story.


 Years of instability and corruption in Portugal brought down the monarchy in 1910 but continued in the years leading up to the events covered in this article. Between 1910 and 1925 the country had seen 9 presidents, 45 ministers, 25 uprisings, 3 short-lived dictatorships and at least 325 bomb incidents. Governments came and went and the economy suffered from terrible bouts of inflation and high unemployment while civil unrest was never far away.


Angola adventures

 Artur Virgilio Alves Reis was born into this highly unstable environment in 1896. After spending his early years in Lisbon, he decided, at the age of 20, to head to the Portuguese colony of Angola to make his fortune. He smoothed his way with his first known attempt at forgery: he prepared a “qualification” in engineering from the fictitious Polytechnic University of Oxford and had it notarised. The certificate also stated that he had also qualified in geology, geometry, physics, metallurgy, electrical engineering, palaeography and pure

It was never challenged and he was able to find work with Angolan Railways, ending up as Acting Chief Engineer. He also started his own import/export business and apparently made good money. In 1922 he returned to Lisbon but soon found money running short. This prompted him to break the law in a more serious way – embezzlement. He gained control of Ambaca, a publicly quoted Angolan rail company with substantial cash reserves of about US$100,000, but acquired the shares using postdated cheques drawn on a New York bank. Once he had gained control he used company funds to meet the cheques. Two years later, in July 1924, this earned him a prison sentence of 54 days in a Lisbon cell.

Decisive meeting

 Meanwhile, back once again in an Angola he had clearly developed an affection for, Alves Reis met Jose Bandeira, a petty crook who was seeking business on behalf of a Dutch investor. He kept in touch with Bandeira and later visited him in the Hague where Bandeira introduced him to his future fellow conspirators. These included: Antonio Bandeira, Jose’s brother and the Portuguese Minister in the Netherlands; Adolf Hennies, a German war profiteer and spy whose original name was Johann Adolf Döring; Karel Marang van Ysselveere, a struggling Dutch businessman with a dubious background.


The plot is hatched

 Shortly after this meeting Alves Reis was jailed for his Angolan fraud. He spent his time in prison planning a much more ambitious scheme targeted at the Banco de Portugal, the privately owned issuer of the country’s currency. He discovered that the bank’s recordkeeping was poor and its note registers incomplete. While they had the exclusive right to issue paper money in metropolitan (mainland) Portugal, it was theoretically only to the value of twice the bank’s capital, though this had been grossly exceeded. Crucially, only the bank had the right to sue counterfeiters and, as a public company, its shares could be openly bought and sold, thus leaving it open to takeover despite a minority government stake.

Alves Reis went on to create a completely fictitious contract in which the State of Angola authorised him to arrange a loan for £1 million (equivalent to Escudos 100 million) in exchange for the right to issue a similar amount of Banco de Portugal banknotes in Angola (ignoring the exclusive right of the Banco Ultramarino to issue all paper currency in Portugal’s colonies). He had the “contract” notarised and then authenticated by the consulates of France, Germany and Britain.

His plan was to find a printing firm that could exactly replicate existing Banco de Portugal banknotes in circulation, delivering those notes to himself and then using them to enrich himself while acquiring majority control of the bank and then hide all evidence of the fraud.

When he next met his fellow conspirators he did not reveal his full plans but won their support. Hennies was asked to approach a German firm to get the notes printed. The notes Alves Reis had in mind were the so-called Poets Notes for Escudos 500 and 1000 featuring Luis de Camoes and Joao de Reus Ramos. These had been printed by Bradbury Wilkinson but without their imprint so he was unaware of which firm had printed them. The German option was not pursued perhaps because of Portuguese suspicions about Germany’s intentions towards its colonies, Germany having lost hers after the First World War. Instead Marang was asked to approach the old established Dutch printing firm Joh. Enschedé en Zonen. They declined to print the notes themselves but did offer to introduce him to Waterlow & Sons who had also printed notes for Portugal.

Meetings with Waterlow & Sons

 Marang, thus armed with a letter of introduction, travelled to London in early December 1924 to meet Waterlows. He also took with him a document signed by Antonio Bandeira stating he was an accredited representative of the Portuguese Government and had a visiting card identifying him as the Hon Consul-General of Persia in the Hague. These got him an audience with Sir William Waterlow, the company’s Chairman. Marang, who was obviously persuasive and convincing, explained that he represented a Dutch syndicate intending to invest in Angola and that their contract required them to issue Banco de Portugal notes identical to those already issued in Portugal itself. He confirmed that they would arrange for the notes to be overprinted “ANGOLA” once they had been delivered. 

Marang emphasised that this contract had to be treated as highly confidential as it was known only to the bank’s Governor, Camacho Rodriguez, and Deputy Governor, João Motta Gomes, due to opposition from within the bank and from Banco Ultramarino, given their exclusive right to issue notes in Portuguese colonies. In an example of the good fortune that accompanied Alves Reis until the very end, Sir William was remarkably helpful when Marang produced the Poets note. He explained that they had not printed these, but instead had printed the Vasco da Gama notes. If the contract specified those he would be able to proceed. He also said the firm would require the express permission of the Banco de Portugal to use their plates and it was agreed a letter would be written to them to that effect. Sir William then accepted Marang’s offer to deliver the letter on his behalf and gave him a letter of introduction for Jose Bandeira to call on Henry Romer, Waterlow’s representative in Lisbon, who would deliver it. Bandeira never called on Romer who subsequently wrote several times to Sir William raising objections to the proposed plan. He remained convinced throughout that it was illegal but his concerns were repeatedly dismissed.

On 17th December Marang called again on Sir William and produced the documents he needed to see, all duly notarised: contracts between the Government of Angola and Alves Reis and between the Banco de Portugal and the Government of Angola authorising the printing of 200,000 Escudos 500 notes; and a Power of Attorney by Alves Reis authorising Marang to act for him. At no stage did Alves Reis himself ever meet Sir William.



The printing contract is signed

 There was still no direct authorisation from the bank to Waterlows but a suitable letter was produced a few weeks later, forged by Alves Reis. Sir William sent all the documents to a City notary for translation and authentication and they passed muster. On 6th January 1925 Sir William and Karel Marang signed the contract for the delivery of 200,000 notes. The firm charged just £1,500 for the order. Contrary to his agreement to treat the contract as highly confidential Sir William also wrote to the Banco de Portugal confirming receipt of their instructions. In either a further stroke of luck or through a skilful interception, the bank never received this letter which would surely have alerted them to the fraud. A further forged letter confirmed the numbering of the notes and which signatures were to be used. This followed some detective work by Alves Reis to determine the correct sequences from Vasco da Gama notes he had examined in circulation. He made a few errors and found that 90,000 out of the 200,000 printed and delivered did not match legitimate notes in circulation so he could not use them. He believed that despite their poor recordkeeping the bank would have spotted notes with the wrong serial numbers on them.

The illicit notes enter circulation

 The first notes were delivered on 10th February 1925, in suitcases to Karel Marang at London’s Ritz Hotel. He took them first to the Hague, where some of the spoils were shared out, then on to Lisbon, all as diplomatic luggage. The bulk of the order went to Alves Reis who insisted he had multiple bribes to pay. Alves Reis started to put the notes into circulation by using middlemen to open multiple bank accounts in Lisbon and Porto and buy foreign currencies on the black market. Rumours of forgeries surface almost immediately but the bank could see no evidence for this and in May put out a statement reassuring the public that the notes had not been forged. Alves Reis experimented with some of the unusable notes to try and make them look circulated. To remove the smell of fresh ink he mixed some first with camphor then soaked them in water and lemon juice. This damaged the notes which took on a reddish tinge causing him to exclaim to his assistant “You see what a magician I am? I turn money into shrimps”. Some “shrimp” notes have survived and occasionally come on to the market. Alves Reis, now suddenly a rich man, started to spend heavily: expensive jewellery for his wife, new cars, several properties including a farming estate and the beautiful Palácio do Menino de Ouro (Palace of the Golden Boy) in central Lisbon, now occupied by the British Council.

Alves Reis founds a new bank

 The next stage in Alves Reis’ plan now came into effect. In April he started the process of founding a new bank, the Banco Angola e Metropole (BAM), with the aim of using it as a vehicle to invest in Portuguese and Angolan companies. His primary aim was of course to buy control of Banco de Portugal. The new bank received its banking licence in June 1925. It was required to have minimum capital of Escudos 20 million, not a problem for a man who could have his own money printed! There were 23 initial shareholders, including family members and associates of Alves Reis such as both Bandeiras. BAM soon began buying shares in the Banco de Portugal. There were 97,000 in issue and control required at least half to be acquired. However, by the time the plot collapsed they had only bought 10,000 shares, well short of the total they had needed.

Second illicit order

 In July Marang visited Waterlows to place a second order, this time for a further 380,000 notes. Count Simon Planaz-Suarez, the Venezuelan Minister in Portugal, was recruited to transport future shipments, given his more prominent diplomatic status. His apartment in Lisbon, which doubled as the Venezuelan embassy, was used to store many of the new notes until they were needed. Sir William finally realised that the numbering was an exact duplication of the bank’s original notes but a further forged letter reassured him this was intended. The new order required delivery to Marang care of the Liverpool Street Station left luggage office (where a storage charge of 1s 6d was incurred for cases of notes worth some £1,900,000). New stronger trunks were needed given the bulk of notes involved but Waterlows’ hefty bill for them of £458 4s 6d somehow remained unpaid! Alves Reis made another mistake in October. He decided that the new notes should no longer be kept in numerical order to reduce suspicions, but this may ultimately have had the opposite effect when new doubts about the notes arose in Porto in late November 1925.

The plot collapses

 A teller at a firm of Porto moneychangers which had handled numerous Vasco da Gama notes became very suspicious that all these brand new notes were not in numerical order and that his employers were destroying related paperwork. He reported his suspicions to the Banco de Portugal who in turn contacted the police.

Over the weekend of 5th and 6th December 1925 the substantial volumes of new notes held by the money-changers and the Porto branches of both BAM and the Banco de Portugal were carefully checked by a team led by the Governor himself. Four pairs of duplicated notes were eventually uncovered and things now began to move with considerable speed. BAM managers and staff were arrested and its operations suspended. Alves Reis himself, just arriving back from another trip to Angola, was arrested on board his ship (while Hennies, on the same ship, evaded arrest and sailed on back to Germany). Banco de Portugal held an emergency board meeting and decided that they had no alternative but to withdraw and redeem all the Vasco da Gama notes in circulation. At this stage they knew no way of distinguishing between legitimate and illicit notes and the public were urgently in need of reassurance that they would not lose out. On the Monday morning notices were issued announcing a redemption programme, with an initial deadline of 16th December. Waterlows were urgently summoned to Lisbon and despatched a team of experts to assist the bank in separating good notes from bad. On the deadline day the horrifying scale of the problem became apparent – they had redeemed 715,577 notes, 115,577 more than the 600,000 the bank had originally issued.

The deadline was extended to 26th December, at which point the number of illicit notes had risen to 195,556 (the final total reached 209,718). They also discovered 77 sets of triplicates, suggesting that either another forger had been at work or, more likely, Alves Reis had deliberately created them to throw people off the scent. Police raids seized unissued notes in the Hague and in Portugal, including four trunk loads in Marang’s home in the Hague and some 85,000 notes in Count Planaz-Suarez’s Lisbon apartment (this seizure breached diplomatic immunity). Marang was arrested while the Venezuelan Count was recalled. All the seized notes were destroyed after the trials. There were widespread suspicions that Waterlows had been complicit in the plot and arrest warrants were issued for their representatives in Portugal. Even the bank’s Governor and Deputy Governor were briefly arrested (though soon released).

The Aftermath

With the conspirators now under arrest, methods established for identifying good and bad notes and the bank’s losses quantifiable, it was the turn of the lawyers to get involved. Progress was slow but a criminal trial against Alves Reis and his fellow Portuguese conspirators eventually got under way in Lisbon in May 1930. Alves Reis had spent much of the intervening time in prison preparing a defence as audacious as the crime itself. He fabricated numerous documents purporting to prove that the Governor and other directors were fully complicit in the plot and had also had more triplicate notes prepared. The court did not believe him and he eventually confessed to devising the whole plot. He insisted that he had acted alone and all his fellow defendants had innocently followed his instructions. The trial did not last long and he was sentenced to eight years in prison followed by twelve years of exile. Jose Bandeira got the same and others got lesser sentences. Meanwhile Marang had been arrested and tried in the Hague. He was sentenced to eleven months in prison for possession of stolen property, following which he left the Netherlands first for Belgium and then for Paris. There he had enough resources to buy a legitimate business and lived for many years, developing a reputation for respectability and integrity before dying in Cannes in 1960.

Hennies escaped by reverting to his previous name and returning to his home town in Germany. He was eventually caught in September 1932 after a former girlfriend informed on him to claim the reward for his arrest. There was no extradition treaty so he was tried and sentenced in Germany to a year in prison. Sir William, who bore full responsibility for his firm’s role in this debacle (he had not even informed his fellow directors what was going on), was removed as Chairman in July 1927 and resigned as a director the following year. This did not stop him from being appointed Lord Mayor of London in November 1929, a role he had coveted for many years. He died in July 1931 and even though he was accorded a funeral in St Paul’s Cathedral only one junior official from his old firm attended. Waterlows suffered a debilitating loss of business and their reputation never really recovered despite the continuing high quality of their work. The security printing division was finally acquired by their rivals Thomas De La Rue in 1960. Alves Reis was released from prison in 1945, by which time he had become an evangelical Christian. He spent his freedom preaching his new faith and trying to make money, once again in rather dubious fashion and with little success. He died a pauper in 1955.


                                                      The civil case in London – a classic legal case study

Banco de Portugal issued their original writ in April 1928 but the first court hearings did not take place
until November 1930. The bank had prepared a detailed case against Waterlows whom they sued
for breach of contract and negligence. Their claim for damages included the face value of all the illicit
notes they had had to honour. The bank’s case was that Waterlows were negligent in acting on forged documents, not checking Marang’s authority, ignoring Romer’s warnings, not referring the proposed contracts to the bank before proceeding and producing notes with the exact same numbers as those already delivered.

Waterlows’ defence was that it was the bank who had been negligent in denying rumours that forgeries were circulating, not checking circulating notes carefully enough, not keeping a proper register of notes issued and failing to act on their knowledge of how to tell good notes from bad once this had been explained by Waterlows (before the 16th December 1925 deadline). They argued that the bank was therefore entitled at most to recovering the printing costs. They took much comfort from the judge’s observation that “it ought to be said that no suggestion has been made, or can be made, against the honesty of Messrs Waterlow. They were, just as much as the bank was, victims of Marang’s fraud”. They argued strongly against their liability extending to the face value of the notes they had printed and the case ultimately turned on whether or not the bank had suffered real losses. Waterlows’ key contention was that there were no real losses as the Portuguese Escudo was not convertible into gold, that when redeemed the illicit notes had merely been exchanged for other Escudo notes and that the bank’s actions had been agreed throughout with the government. The counter-argument by the bank was that they had been forced to redeem illicit notes for no value received, even though the notes could and did buy foreign currency, including gold, as they were backed by the good standing of both the bank and the government. Therefore, inconvertibility was irrelevant. 

On 12th January 1931 Mr Justice Wright found in favour of the bank and awarded them the full amount of their claim, less amounts previously recovered from BAM, a net sum of £569,421. Waterlows immediately appealed and in the Court of Appeal had the total claim reduced to £300,000 on the narrow grounds that the bank should have been able to distinguish legitimate from illicit notes on an earlier date than 16th December. The bank appealed that decision and the case moved to the House of Lords where five Law Lords sat in ultimate judgement. They found in favour of the bank for the full amount of their claim but only by three votes to two.

 This was rightly greeted as a triumph in Portugal as a wonderful example of British justice – how many countries would allow their judiciary to find in favour of a foreign claimant whatever the strength of their case? The Lord Chancellor summarised by stating: “I have come to the conclusion that the bank would have been failing in their duty to their shareholders, their customers and the country if they had not taken the step they did”. On 28th April 1932 the Law Lords awarded the bank their full claim, less sums recovered from BAM. With costs the total came to £697,416 and on 11th May Waterlows issued a cheque for £645,000 in settlement, some costs having already been paid. In today’s money £697,416 is the equivalent of about £41 million.


                                                                                   Economic Case Study

 Did this unintended (by the bank) quantitative easing help or hinder the Portuguese economy? The five years prior to the scandal had seen high inflation averaging 48% p.a. and severe currency devaluation averaging 83% p.a. 1925 had however seen some stabilisation although unemployment remained high and political instability persisted. The total of illicit notes put into circulation equated to a mere 0.88% of GDP in 1925 though the increase in cash in circulation was 5.9%. Was the issue of illicit notes beneficial to the Portuguese economy or not? Did it help fend off imminent deflation and recession? Precise conclusions are difficult given the poor quality of economic statistics. The Economist, in their obituary of Alves Reis, observed that “the perpetrators, however reprehensible their motives, did Portugal a very good turn according to the best Keynesian principles”. Henry Wigan, in his 2004 case study for the London School of Economics, concluded however that “the crisis aggravated inflation and induced a loss of credibility in the First Republic. The credibility loss proves more significant than its inflationary counterpart when explaining the Crisis’s relationship with the collapse of the First Republic. The crisis was in effect a trigger event”. Salazar became head of state in 1932 and his dictatorship lasted until 1974.

Numismatic Case Study Banco de Portugal had ordered 600,000 notes of the Vasco da Gama design and all these were in circulation at the time of the fraud. There were 20,000 per prefix, all with two signatures, the Governor Camacho Rodrigues plus one of ten directors in rotation every 5,000 notes. 30 prefixes were used: 1B to 1Z and 1AB to 1AN, omitting second vowels and the letters W and Y. Alves Reis’ first order used the prefixes 1AB to 1AU with only 10,000 notes per prefix. Nine prefixes did not match the bank’s and these 90,000 notes were not issued: 1AE, 1AI, 1AO, 1AP, 1AQ, 1AR, 1AS, 1AT and 1AU. Of these prefixes, only 1AI and 1AU have been seen on surviving notes and the others were presumably destroyed. His larger second order used the prefixes 1B to 1Z correctly omitting all vowels and the letters W and Y, thus 19 prefixes at 20,000 per prefix, 380,000 notes in all.

 It is estimated that less than 1/3rd of these notes had been put into circulation when the plot was uncovered. The numismatic puzzle is how to distinguish legitimate notes from the illicit Alves Reis ones. 


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