Nothing Better Than The Real Thing (Special Story)

It has been 75 years since the passing of Artur Virgilio Alves Reis. His death on June 9, 1955, went virtually unnoticed, but 30 years earlier his name had been emblazoned across the front pages of newspaper across Europe for having perpetrated a deception on a scale unparalleled in the history of financial fraud.

Angola

Born in 1896 in Lisbon, Portugal, Reis grew up in turbulent times. King Carlos together with his eldest son were both assassinated in 1908, and two years later the youngest son, who has ascended to the throne as King Manuel II, was overthrown in a military coup. This led to the establishment of Portugal's first republic, which was expected to improve people's living standards, but with over 70 percent of the population illiterate and a GDP per capita that was only 40 percent of the Western European average, it was an unenviable task. For anyone born outside of the privileged upper classes, improving their lives would continue to be an uphill struggle, as Reis, the son of an impoverished undertaker, knew only too well.

In 1916, Reis decided his future lay elsewhere and made plans to emigrate to the then Portuguese colony of Angola in southwest Africa. This would mark the beginning of his fraudulent activities, as after having completed just one year of his engineering studies, he decided that his academic qualification required some embellishing. He arrived in Angola with a forged diploma from Oxford University affirming that he had studied at the Polytechnic of Engineering, a constituent college of the university where he had obtained degrees in a host of subjects including electrical and mechanical engineering, and applied mechanics. It was an impressive forgery, made even more so by being duly notarized in Lisbon with an elaborate seal. The college didn't exist, but no one in Angola was going to question the validity of a document authenticated by a Portuguese attorney.

Landing a job with the state-run Angola Railways, Reis displayed an aptitude for mechanical engineering and quickly rose to the position of Acting Chief Engineer. The railway originated in the port city of Mocamedes in the south of the country, and the intention was to extend it inland for 750 kilometers but thanks to the incompetence of the colonial government, construction was painfully slow. This left Reis with plenty of spare time to concentrate on other more lucrative pursuits.

Forming his own trading company to export coffee, sugar and maize back to the protected markets in Portugal, by 1922 Reis had amassed a considerable amount of money and decided it was time for him to return to Portugal.

Master Plan

With his newly acquired wealth, Reis established an import-export company specializing in shipping goods to and from Angola, and also acquired US automobile dealership. Although he was successful as a business man, he lacked the capital to expand, so he resorted to purchasing goods by issuing checks from his bank in New York. These took eight days to cross the Atlantic and clear, by which time he had sold the goods and deposited the proceeds into his US account to cover the checks. But in July 1924 an incoming payment was delayed, one of his checks bounced, and he was arrested and imprisoned for 54 days while waiting for his case to be tried. By the time he appeared in court, it was found that he had erroneously been charged embezzlement and the charge was changed to fraud. Consequently, the court ruled that was a civil case and not a criminal one, and he was released on bail.

During his period of incarceration, instead of brooding over his misfortune, he thought of ways to use his forging skills as a short cut to becoming seriously rich, an conceived a counterfeiting masterplan that could make him the wealthiest man in Portugal. The Banco do Portugal had the exclusive right to produce the country's currency, using the engraver Water low & Sons in London. Waterlow's was removed for its superior anti-counterfeiting technology, which it used to print 500 and 1000 Escudo notes, equivalent in value at the time to $25 and $50 today. The key to Reis's plan was to find someone with a respected enough name who could convince Waterlow's to secretly print additional banknotes.

Upon his return to Portugal. Reis had made the acquaintance of two men who would make ideal accomplice. Both were of questionable repute but had all the right connections to ensure the success of his scheme. Jose Bandeira was the brother of the Portuguese Ambassador to the Netherlands, and Karel Marang van Ysselveere was a prosperous Dutch merchant and financier who, in addition to specializing in black market transactions, was the Consular-General for Persia at the Hague, which provided him with a highly valuable asset: diplomatic immunity.

Counterfeit or Duplicate

The Portuguese Ambassador to the Netherlands, Antonio Bandeira, on instructions from his brother Jose, signed a letter of introductions on stationary of the Embassy of Portugal vouching that Van Ysselveere was a respected Dutch citizen who had power of attorney for Reis to negotiate the printing of banknotes. Van Ysselveere arrived at Waterlow's and presented his letter of introduction together with his Consular-General credentials to the company's managing director, Sir William Water low, along with a letter on forged Banco do Portugal stationary from the bank's governor addressed to Sir William, requesting the printing of additional banknotes. The letter also confirmed that Reis was the head of a private syndicate participating in an official and secret plan to provide a $5 million loan to Angola in hard currency.

Van Ysselveere spun the story concocted by Reis that the syndicate had been formed to save Angola from its current dire financial condition, and in return for the loan the syndicate would be allowed to print and circulate banknotes in Angola. After Waterlow's had printed the banknotes for the syndicate, the Banco do Portugal would then over-stamp them with the word "ANGOLA" so there would be no confusion with notes circulating in Portugal. Van Ysselveere emphasized the importance of keeping the whole affair secret lest Angola slide into further financial trouble and fall prey to rival colonial powers in Africa.

Banco Nacional Ultramarino, which had the exclusive right to print banknotes for Portugal's colonies, was not to have any knowledge of this highly classified plan. Sir William knew that over-stamping was normal practice by the Portuguese for notes to be used in its colonies, and also knew that Ultramarino contracted out to another English printer for notes to be used in the colonies, and he saw this as an ideal opportunity for his company to take this business away from his competitor. The deal was signed in January 1925, and Reis paid $7200 to cover the cost of printing, I'm exchange for which he and his conspirators would receive banknotes worth the equivalent of $5 million, representing a return of over 69,000 percent on their investment!

The first batch of notes was delivered in February, and deposited by Van Ysselveere in the left-luggage office of a London railway terminus. The second batch was delivered in March, bringing the total to 100 million Escudo. Van Ysselveere now used his diplomatic credentials to transport the money by train to the port of Harwich, and then shipped it to Holland by passenger ferry. Here he was joined by Jose Bandeira, and together they set about the laborious task of mixing the notes so that serial numbers were out of sequence. They then put the banknotes in luggage marked "Legation of Portgal," and, with Jose carrying a diplomatic pass issued by his brother, took the money by train across Europe and into Portugal. With no questions asked, they placed an additional order with Waterlow's for 190 million Escudos ($9.5 million), and repeated the operation one more time.

The greatest risk was having notes with duplicate numbers discovered, but this was the lesser of two evils. If they had requested banknotes outside the numerical range of the 500 Escudo notes, this would have quickly become apparent in Portugal, and would also have prompted Waterlow's to ask why they were doing this. As the notes were to be over-stamped for use in Angola, there could be no confusion with notes issued for use in Portugal. The risk was lower in duplicating existing serial numbers, enabling them to successfully release all the banknotes before the law of large numbers caught up with them.

Money Laundering and Banks

Sitting on newly minted banknotes equal to one percent of Portugal's GDP, or $150 billion in today's money, Reis and his partners now faced the problem of laundering them. If they had used every petty criminal in Portugal, they wouldn't have been able to unload a fraction of the notes in their possession. They used freelance dealers to buy hard currency on the black market and deposited the notes in bank branches throughout the country, subsequently making withdrawal s from their head office in Lisbon. But it was a slow and time-consuming process, and so Reis decided the solution would be to have their own bank.

With no shortage of funds, it was an easy task to persuade corrupt government officials and politicians to grant his application for a bank charter, and in June 1925 the newly approved Banco Angola e Metropole opened business with multiple branches in Lisbon and Oporto to speed up the distribution of the money. The Banco Angola e Metropole gave the best foreign exchange rates, provided mortgages and business loans in cash, and offered high interest rates on deposits. Not surprisingly, the bank had no shortage of customers. Reis, Van Ysselveere and Bandeira now began enjoying the fruits of their illicit activities, buying expensive clothes, jewelry, cars, and real estate.

Reis now began thinking ways to protect himself in the event that the unthinkable happened and his scheme was uncovered. He reasoned that having counterfeited Banco do Portugal banknotes, only the bank could initiate proceedings to prosecute him and his partners, but what if he had a controlling share in the Banco do Portugal? He would obviously defer from taking such an action against himself. And so Reis set about trying to buy the 45,000 voting shares needed to give him control of the bank, but even by his own standards this was overly ambitious, and by November 1925 he had only managed to acquire just over 10,000 shares.

Detection, Arrest and Trial

Portugal was flooded with these freshly minted banknotes and the economy was booming. Reis's rationale was, how was this different from what the government did? Although the Banco do Portugal was supposed to issue banknotes worth three times its capital, it had, in fact issued banknotes valued at a hundred times more, and Reis considered his monetary manipulation to be minor by comparison.

Officials at Banco do Portugal had for some time believed there were counterfeit notes in circulation, but because they had been printing additional notes and failed to record the serial numbers accurately or inform the government of the increasing number of notes in circulation, they had no way of detecting the counterfeits. However in October 1925, quite by a chance a bank teller noticed he had two 500 Escudo notes with the same serial number. He alerted officials of Banco do Portugal who launched an investigation. Armed with a warrant, police raided one of the Banco Angola e Metropole's branches in Lisbon, only to discover huge caches of the duplicate banknotes.

Reis must have had a premonition his fraud would one day be uncovered, as he apparently prepared for this eventually we'll in advance. On December 4, his scheme was exposed and he and his partners, and anyone associated with the Banco Angola e Metropole, were arrested. Yet on the same day he produced evidence that showed the Banco do Portugal was responsible for the whole duplicate banknote scheme. Such was the quality of these forged documents they were thought to be authentic, and the governor of the Banco do Portugal and his deputy were also arrested in the belief they were indeed involved. Total confusion reigned and an intensive investigation was launched. But due to Reis's elaborate subterfuge, it took five years to determine how the fraud was perpetrated and precisely who else was involved before enough evidence was gathered to bring Reis to trial, during which he remained in jail.

Because all the counterfeit 500 Escudo notes had been produced by the same printer using the same plates as the real ones, it was impossible to differentiate between them. Thus the Banco do Portugal was forced to withdraw every single 500 Escudo note from circulation. People were given until December 26 to exchange up to 200 of them for 1,000 Escudo notes, and after this date they would be worthless. The revelation of the fraud created a crisis of confidence not only in Portugal's monetary system but also in its government, and this would be a major contributing factor to it's downfall five months later when it was overthrown by a coup d'etat to be replaced by repressive dictatorship that would stay in power for the next 40 years.

When Reis was finally brought in trial in May 1930, he said that his motivation was to acquire sufficient capital to help create a great and prosperous Angola, but the court concluded that it was to create a great and prosperous Reis. On June 29, 1930, he was found guilty of introducing 330,000 counterfeit banknotes valued at 165 million Escudo into Portuguese economy, and sentenced to 20 years in prison. His partners were also found guilty, but thanks to Reis insisting they were unwitting accomplices, they received far lesser sentences. Reis was released from prison on May 14, 1945, with the five years spent in detention before trial being deemed as time served. He died of a heart attack ten years later, forgotten and impoverished at the aged of 59.

While the actions of Arturo Virgilio Alves Reis cannot be condoned, it is impossible not to admire the sheer audacity of his plan, which so nearly succeeded. He showed that if you are going to run a banknote counterfeiting operation, there's nothing better than using the real thing!

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