Alves dos Reis

One of the fraudulent banknotes

Waterlow and Sons Limited printed 200,000 banknotes of 500 Portuguese escudos (which was equivalent to 0.88% of Portugal's nominal GDP at the time) with an image of Vasco da Gama, with the date of 17 November 1922, to a total face value of 100 million escudos. There were almost as many false 500 escudos banknotes as real ones. First delivery was made in February 1925, one year after the real 500 escudo banknotes with the image of Vasco da Gama began to circulate. The notes were transported from England to Portugal with the help of Reis's accomplices, José Bandeira, who would use the diplomatic advantages of his brother, and Karel Marang, who held a diplomatic passport issued by Liberia. Reis then proceeded to launder the bills into gold-backed foreign currencies and smaller denominations of Portuguese currency.

Reis himself received 25% of the proceeds of his scheme, which made him very wealthy. Maintaining always the internal fiction that they were acting for the government, he reminded his partners of their moral obligations to Angola. Together they created the "Bank of Angola & Metropole" in June 1925, with Bandeira at the helm, both to aid in circulation of their bills and to invest in projects in both Portugal and Angola. By illegally increasing the monetary base and investing heavily in currency, land, building, and businesses, he and Bandeira created a boom in the Portuguese economy. Reis bought the Palace of the Golden Boy (Palácio do Menino de Ouro, nowadays the building of the British Council in Lisbon), three farms, a taxi fleet, and spent an enormous quantity of money on jewellery and expensive clothing for his wife. José Bandeira bought retail shops and invested in all manner of enterprise; he also sought, unsuccessfully, to purchase the newspaper Diário de Notícias. In the fall of 1925 Reis and Hennies made a tour of Angola, buying properties, investing in corporations, and making development plans. He was hailed there as a savior and as "Portugal's own Cecil Rhodes".

The final phase of Reis' scheme was to buy controlling interest in the Bank of Portugal, a step which would allow him to retroactively make his fiction about Bank approval true. With control of the bank, the entire counterfeiting could be swept under the rug, ensuring that there would never be any evidence of the fraud. During the summer and fall of 1925, while he and Hennies toured Angola, he had Bandeira and his own assistant Francisco Ferreira, Jr. ferreting out the ownership of the Bank shares (it was secret) and buying them under the complicated rules that the Bank's charter allowed. Eventually they controlled 10,000 of the 45,000 shares needed for controlling interest in the bank, but publicity led Bandeira to ease off the purchases even as he sent Reis ever more inflated false reports of the number of shares they had acquired.

Throughout 1925 rumours of fake banknotes arose, but they could not be detected: the notes Reis had released were not counterfeit as such, but real—although unauthorized—Bank of Portugal bills.[2]

Although the issuing of unauthorised banknotes went undetected, the attempts by Reis and his partners to make good their fictitious obligations to Angola attracted attention for other reasons. The Portuguese had long suspected the German government of coveting their Angola colony. The prominent role of Hennies in the bank and Reis' triumphal return to Angola caused suspicion because of Hennies's well-established relationship with Germany's espionage apparatus during World War I. The acquisition of large tracts of plantation land by Angola and Metropole alarmed Alfredo de Silva, who controlled Portugal's market in vegetable oils. De Silva's friend and business associate Pereira da Rosa (who himself sat on the boards of banks that had been losing business to the Angola & Metropole) owned O Século (Portuguese for "The Century"), the most important daily newspaper at the time and one that was concerned at the prospect of a deep-pocketed owner for the competing Diário de Notícias. The newspaper assigned its top reporters to dig into the bank and Reis, beginning a campaign of aspersion and innuendo.

Journalists asked how it was possible that Reis's bank, Banco de Angola e Metrópole, gave loans with low interest rates without the need of receiving deposits. It was implied that the bank was a German front aimed at infiltrating the country and gaining control of the Angolan colony. The campaign, filled with insinuation and calls for investigation, made public the fact that the Inspector of Banking Commerce had opened an investigation shortly before the newspaper's crusade began. The inspector's inquiry was into the attempts by people associated with the Angola & Metropole to buy up shares of the Bank of Portugal. The revelation of the effort added fuel to the dark suspicions that then hung around the Angola & Metropole and its backers.

On 4 December 1925 a teller for a money-changer in Porto who had been following all the allegations and revelations in the press suddenly had a flash of insight and became convinced that the Angola & Metropole must be counterfeiting. The teller had an advantage on other observers; his employer was one of Reis' half-unwitting launderers. The Angola & Metropole illegally bought foreign exchange from him at a premium (money exchange was illegal in Portugal at the time, but in fact widespread and tolerated). The ledgers of these transactions were then torn out and destroyed. Although neither the teller nor the officials at the Porto branch of the Bank of Portugal could find any evidence that the bills from the Angola & Metropole were counterfeit, the circumstances were suspicious enough that the allegation was reported to Lisbon.[2]

O Século publicly revealed the fraud on 5 December 1925. The day before, the Bank of Portugal had sent the inspector João Teixeira Direito, to Porto, to investigate the huge deposits by the Banco de Angola e Metrópole in banknotes of 500 escudos at the cambist firm Pinto da Cunha. After exhaustive and frustrating investigation, they finally noticed, by chance, banknotes with duplicate serial numbers. Authorities ordered all bank agencies to store their notes by order of serial number to detect duplicates; many more were found. The Bank of Portugal contacted Waterlow and Sons, and Reis's scheme fell apart.

Crowds rush to the Bank of Portugal building in Lisbon, to exchange the fraudulent banknotes (8 December 1925)

On 6 December, Reis's bank's wealth was confiscated and arrest warrants were issued for him and most of his associates. Reis and Hennies were on board the Adolph Woerman en route to Portugal from Angola and were tipped off that they were to be arrested when they made harbour. Hennies slipped away and managed to elude capture; he changed his identity and was able to keep most of his share. Despite Hennies's pleading, Reis refused to run and insisted on returning to Lisbon to defend himself. He was arrested a few days later. He was 28 years old.

In the following trial, Reis's forged documents, and widespread cynicism about the nation's elites, were convincing enough for judges to suspect that Bank of Portugal officials and others in the government and establishment might really be involved. This delayed the sentence for five years, but Reis was finally tried in May 1930. He was convicted and sentenced to 20 years in prison. In prison, Reis converted to Protestantism and converted other prisoners. He was released in May 1945, and was offered, but refused, a job as a bank employee. Reis died of a heart attack in 1955.

Bandeira received a sentence of 15 years, served it, and upon release, briefly went into the nightclub business. He died in late March 1960 in Lisbon, a well-liked man of modest means.[3]

Marang was tried in the Netherlands and sentenced to 11 months. He left the country rather than serve prison time. He later purchased a small electrical manufacturer in France, eventually becoming a respected manufacturer, family man, and French citizen. He turned over management of the prosperous firm to his sons and died at his vacation home in Cannes on February 13, 1960.[4]

Hennies fled to Germany and reappeared later under his real name, Hans Döring. He lived high for some time but eventually lost much of his wealth on poor investments. Turning over all his assets to a trusted friend, he later found it impossible to reclaim them and lived in near poverty. On August 29, 1936, he died in disputed circumstances while in a Berlin hospital.[5]

Reis's fraud had enormous repercussions on the economy and politics of Portugal. By the end of 1925 Reis had managed to introduce escudo banknotes worth £1,007,963 (at 1925 exchange rates: £57.9 million in modern pounds[6]) into the Portuguese economy. The exchange rate of the Portuguese escudo fell and it lost much of its credibility. After the scheme was found out, the Bank of Portugal ordered the withdrawal of all 500 escudo banknotes within 20 days; by 26 December 115,000 counterfeit notes were withdrawn.

When Reis's fraud became public knowledge in December 1925 it brought about a crisis of confidence in the Portuguese government. Although events of this period are still little understood, this crisis had a strong effect on the nationalist military 28th May 1926 coup d'état against the Portuguese First Republic government and President Bernardino Machado that brought the Ditadura Nacional (National Dictatorship) to power, heralding the Estado Novo dictatorship from 1926 to 1974, with António de Oliveira Salazar ruling from 1932 to 1968.

Banco de Portugal sued Waterlow & Sons in the High Court in London. In one of the most complex trials in English legal history, the case was finally settled in the House of Lords on 28 April 1932 in favour of the Banco de Portugal, which was awarded £610,392 in damages.

Waterlow & Sons' business never completely recovered; it was finally acquired by De La Rue in 1961. Sir William Waterlow had been dismissed as president of the printing house and was elected Lord Mayor of London in 1929. He died of peritonitis on 6 July 1931 before the final judgment of the House of Lords.