66By 1939, the GermanReich had begun toformulate a plan—

known as OperationBernhard—to under mine

the economies ofthe British Empire

and the United Statesthrough currency

destabilization. (U)

99All statements of fact, opinion, or analysis expressedin Studies. in Intelligence are those of the authors.They do not neceesarily reflect official positions orviews of the Central Intelligence Agency or any other1/61 Government entity, past or prevent. Nothing inthe contents should be construed au asserting orimplying US Government endorsement of an article'sfactual statements and interpretations.

Dr. Kevin C. Ruffner serveson the CIA History Staff.

CL BY C_CL REASON: 1.5(c)DECL ON: XIDRV FROM: HUM 4-82

DECLASSIFIED AND RELEASED BY

CENTRAL INTELLIGENCE AGENCY

SOURCES METHODS EXEMPT I0N3320NAZI WAR CR I M ESDISCLOSURE ACTDATE 2003 2000

Shifting from Wartime to Peacetime Intelligence Operations

Studies in Intelligence (2002)

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On the Trail of Nazi Counterfeiters (U)

Kevin C. Ruffner

In November 2000, CBS televi-sion broadcast to the world itsefforts to locate hidden Nazitreasures in the deep waters ofLake Toplitz in the TotesGebirge mountains of westernAustria.' During the previoussummer, Oceaneering Technol-ogies—the same underwatersalvage company that discov-ered the Titanic—had mappedthe lake and used a sophisti-cated one-man submarine toscour its freezing, dark bottom.Only at the end of the searchdid Oceaneering detect the rem-nants of wooden crates, whichturned out to contain counter-feit British pounds andAmerican dollars. The bills werein excellent condition. Thelake—which has no oxygenbelow 65 feet—"preserveseverything" that falls into it,according to a local resident.2Although more valuable trea-sures did not emerge from LakeToplitz during the expedition in2000, the discovery of theforged currency reawakenedinterest in one of the mostbizarre intelligence adventuresfrom the climactic end of WorldWar II. (U)

For information on the Lake Toplitz ex-pedition in 2000, see CBS 60 Minutes II,"Hitler's Lake," produced By Bill Owens,21 November 2000. (U)

Emmanuel Serot, "Underwater Searchfor Nazi Relics in Austrian Lake," AgenceFrance Press, 7 June 2000. (U)

Plate for counterfeit British pounds recov-ered from Lake Toplitz in 1959 during asearch sponsored by the German maga-zine Stern. The Austrian government con-ducted its own recovery operation fouryears later, surfacing additional artifacts.(U)

Operation Bernhard (U)

By 1939, the German Reich hadbegun to formulate a plan toundermine the economies ofthe British Empire and theUnited States through currencydestabilization. 3 Known asOperation Bernhard, the plotwas launched by SS officersAlfred Naujocks and BernhardKruger of the Reichsicherheit-shauptamt (the German SecurityMain Office, or RHSA), who

3 For information on Operation Bern-hard, see Anthony Pine, OperationBernhard (New York: William Morrowand Company, 1962) and WilhelmHoettl, Hitler's Paper Weapon(London R. Hart-Davis, 1955)

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decided to produce bogus cur-rency in addition to fiilsedocuments, as part of a broadwartime intelligence campaign:The German counterfeitingscheme ranks among the war'smost interesting clandestineactivities and involved the high-est officials in the Third Reich."Had this counterfeiting opera-tion (been) fully organized in1939 and early 1940," Holo-caust scholar Rabbi Marvin Hierhas commented, the "results ofWorld War II may have beenquite different." 4 (U)

As it turned out, it took theGermans until 1942 to putOperation Bernhard into highgear. At Sachsenhausen concen-tration camp near Berlin, SS

Sturmbannfuhrer BernhardKruger, oversaw the work of140 Jewish prisoners trained asforgers. Isolated from the mainprison area by barbed wirefences, two barracks were setasitia-Shnitittfe.sprinters, binders, photogra-phers, and engravers. The Nazisplaced a prisoner as the head ofeach section under the overallcharge of Oskar Stein, an officemanager and bookkeeper. Inaddition to sparing their lives,Kruger offered the prisonersbetter food and other privilegesfor their hard work. (U)

4 Reuters, "'Hider's Lake' Yields Counter-feit Currency," X) November 2000. (U)

66The German

counterfeiting schemeranks among the war's

most interestingclandestine activities and

Involved the highestofficials in the Third

Reich. (U)

99

The Germans faced numeroustechnical difficulties in counter-feiting British and Americanmoney. By mid-1943, the SShad contracted with the Hahne-muhle paper factory inI3raunschweig in northern Ger-many to make the special rag.needed to replicate Britishmoney. The Gemians.used inkproduced by two companies in -Berlin. Wartime shortages, cou-pled with imperfections, limited

Bernhard Kruger, in charge of counterfeit-ing at Sachsenhausen concentrationcamp. (U)

the production of British cur-rency. The Germans reportedlyprinted some 134 millionpounds 'sterling in less than twoyears, yet Stein estimated thatonly 10 percent of it could beconsidered usable. Efforts toreproduce American currencyproved less successful, despitethe work of Solly Smolianoff, anexperienced criminal forgerwhom Kruger added to his col-lection of skilled workers atSachsenhausen. i (U)

In addition to British and Amer-ican currency, the SS crafted awide array of forged civilianand military identity cards, pass-ports, marriage and birthcertificates, stamps, and otherofficial documents. Reichsfu-hrer Heinrich Himmlerreportedly . planned to use theseforged documents and moneyto create havoc among theAllies as well as to underwriteNazi agents throughout theworld. Himmler, for example,wanted to drop the imperfectBritish pounds on the UnitedKingdom by airplane. Thesenotes "were good enough tofool anyone but an expert," apostwar report noted. "There-fore, if a large quantity wasdumped and the English

5 For further details on Smolianoff, seeMurray Teigh Bloom, The BrotherhoodofMoney: The Secret World of Bank NotePrinters (Port Clinton: BNR Press, 1983)and Murray Teigh Bloom, Money ofTheir Own: The Great Counterfeiters(New York: Scribner, 1957). (U)

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46

government declared themcounterfeit, man.), would say thegovernment was merely tryingto avoid redeeming them." (U)

The rapid advance of the Sovietarmy. in early 1945 necessitatedthe evacuation of the Jewish.counterfeiters from Sachsen-hausen and their transfer toMauthausen concentration campin'Austria. In mid-April, theGermans again moved theprisoners and machinery to anunused brewery at Redl-Zipfwhere they hoped to start upproduction in an undergroundfactory in the mountains. TheNazis had little time to resumecounterfeiting before the warcame to an end. By the lastweek of April, the Germans hadordered the inmates to destroyas much of the machinery andthe money, and as many of therecords as possible. In one ofthe last desperate acts of WorldWar H, the SS dumped crates

" Germany: Economic. "Manufacture ofPoprid Votes: 20June 1945, (In-Pwrs.. 113-finirtlati-26 MI5; 194 -tralg 'of Distri-

bution: 10 July 1945) Report No. B-2832,in Col. William G. Brey, Chief, ForeignExchange Depository, Finance Division,

• Office of Military Government/US (here-after cited as OMGUS), to Director, Fi-nance Division, OMGUS, 3 October1946, enclosing untitled, undated report

• by Maj. George J. McNally, Chief Coun-terfeit Detection Section, with attach-ments, in Record Group 260, Records ofUS Occupation Headquarters, WorldWar II, OMGUS Records, Office of Fi-nance Division and Finance Advisor,Central Files of Foreign Exchange De-pository Group 1945-50, Box 451, File950.31, Currency-Counterfeit Investiga-tions, National Archives and Records Ad-ministration (hereafter cited as NARA).This source is subsequently referencedas McNally Report. (U)

In one of the lastdesperate acts of WorldWar II, the SS dumped

,_crates full of counterfeitmoney into Lake Toplitz.

99

full of counterfeit money intonearby Lake Toplitz. They thenmoved the inmates to Ebenseeconcentration camp. The USArmy's liberation of the campon 6 May prevented the Ger-mans from killing the inmates.Once freed, Operation Bern-hard's workers quicklyscattered. 7 (U)

Fears of "The Nazi Redoubt"(U)

In 1945, the US Army and theOffice of Strategic Services(OSS) raced to investigaterumors of a Nazi counterfeitingoperation, fearful that suchresources might be used tofinance an underground Naziresistance movement. 8 Worries

'For an account by one of the Jewish in-mates involved with Operation Bern-hard, see Adolf Burger, UnternehmenBernhard: Die Geldfalscherwerkstatt gmKZ Sacbenshausen (Berlin: Edition Hel-nrichs, 1992). (U)

The US government also focused oncaring other types of Nazi assets thatcould be used to sustain the enemy. InProject SAFEHAVEN, the State and Trea-sury Departments embarked upon aworldwide effort to locate Germany'shidden resources. The OSS played animportant role in reporting on Germanassets in such countries as Portugal,Spain, Sweden, Switzerland, and Turkey.See: Donald P. Steury, "Tracking Nazi'Gold': The OSS and Project SAFE-HAVEN," Studies in Intelligence, Vol. 43,No. 2 (1999), pp. 57-71. (U)

about a last ditch Nazi stand inthe Alps had mounted apprecia-bly over the final year of thewar. Even as German forcesmelted and Allied armiesswarmed through the shell ofthe Thousand Year Reich in thespring of 1945, Gen. DwightEisenhower noted that "If theGerman was permitted to estab-lish (a) Redoubt, he mightpossibly force us to engage in along, drawn-out guerrilla typeof warfare, or a costly siege."9(U)

As the noose tightened aroundthe Third Reich, the OSS beganto glean bits of Informationabout an intricate German plotto manipulate currencies. InMarch 1945, the OSS in Bernlearned that the former chauf-feur of the Hungarianambassador to Switzerland hadcome across a "Herr Schwendt"while traveling through Mer-ano, northern Italy. This"Schwendt" had urged the Hun-garian to get a job in theAmerican or British legations inSwitzerland and provide infor-mation to the Germans in returnfor doll-ars and pounds to sellon the Swiss black market.Instead, the chauffeur con-tacted the OSS. He said that"Schwendt" lived at Schloss Lab-ers on the outskirts of Meranoand that his castle had a radiostation and extensive telephoneinstallations. He also reported

9 Joseph E. Persico, Piercing the Reich:The Penetration of Nazi Germany byAmerican Secret Agents during WorldWan! (New York: Viking Press, 1979),p. 11. (U)

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that he happened to see that"cases full of brand new ItalianLire were being unpacked." TheOSS reported Schloss Labers as

a bombing target. (s)

In April, a German deserter told

the OSS in Switzerland thatHimmler had formed"Sonderkornmando Schwendt"

as an independent unit "to pur-chase abroad a variety ofobjects including gold, dia-monds, securities, as well ascertain raw materials and fin-ished products:" Two weeksafter VE-Day in May, the OSSintercepted a letter in Switzer-land from what appeared to bea German civilian who hadbeen involved in obtaining theright paper stock for the print-ing of British currency. Theletter-writer provided anaccount of the beginnings ofthe operation, the firmsinvolved, and the names of sev-eral SS officers who hadsupervised the production. The

author had even visited the pro-duction facility and met theJewish inmates. I2 (S)

"Italy—Bombing Target (Sketch At-tached)," 16 March 1945, B-2037, (noclassification stated), in Fritz Schwend,File C_ .3 Records of the Direc-torate of Operations (hereafter cited byname, 201 file number, and DORecords). (S)

"Sonder-Kommando Schwendt,"12 April 1945, B-2460, (no classificationstated), in Schwend, File aDO Records. (S)12 McNally Report. (U)

A former Secret Serviceagent.. .McNally soon

found his peactime skillsin demand in occupied

Europe.

Military Investigation (U)

In early May 1945, US ArmyCapt. George J. McNally, Jr.,received word that US troops inBavaria had located a factorystocked with boxes of counter-feit British pounds. McNally wasassigned to the Currency Sec-tion Of the G-5 Division'sFinancial Branch at SupremeHeadquarters Allied Expedition-ary Force, in newly capturedFrankfurt. A former Secret Ser-vice agent who had specializedin counterfeiting cases beforethe war he soon found hispeacetime skills in demand inoccupied Europe. McNallyheard that American soldiersand Austrian civilians werebusily fishing out millions ofdollars worth of British moneyfound floating in the Enns River.Meanwhile, a German armycaptain in Austria had surren-dered a truck with 23 boxes ofBritish money, valued at21 million pounds sterling.McNally spent the next eightmonths untangling the twistedwebs of Operation Bernhardthat extended into Austria,Czechoslovakia, Germany, andLuxembourg, seeking touncover how the Germans hadcompromised the security of themonetary systems of theAllies. 13 (U)

In late May, McNally begancoordinating his investigationinto German currency opera-tions with the British. Fromintelligence sources in the Mid-dle East, the British alreadyknew that the Germans hadbeen busily undermining theircurrency. At a meeting withBritish officials in Frankfurt inearly June 1945, McNally met P.J. Reeves, the manager of the St.Luke's Printing Works in Lon-don (the British equivalent tothe US Bureau of Printing andEngraving). Reeves was visiblyperturbed when he saw theamount of British currency thatMcNally had recovered in Aus-tria. "He began going from boxto box, rifling the notes throughhis fingers. Finally he stoppedand stared silently into space.Then for several seconds,"MtNally later recalled, "hecursed, slowly and methodi-cally in a cultured Englishvoice, but with vehemence.`Sorry,' he said at last. 'But thepeople who made this stuffhave cost us so much." Indeed,the Bank of England had torecall all of its five-pound notesand exchange them for newones.14(U)

13 George). McNally, with FredericSondern, "The Nazi Counterfeit Plot," inSecrets and Spies: Behind-the-Scenes Sto-ries of World War II (Pleasantville: TheReader's Digest Association, 1964), pp.507-514. Originally published as "TheGreat Nazi Counterfeit Plot," in the July1952 issue of Reader's Digest. (U)14 McNally, "The Nazi Counterfeit Plot,"p. 507. (U)

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66

McNally, joineci. by ChiefInspector William Rudkin,Inspector Reginald Minter, andDetective Sgt. Frederick Chad-bourn from Scotland Yard, andCapt. S. G. Michel, a Frencharmy liaison officer attached tothe Americans, focused onInterviewing Germans involvedin planning Operation Bern-hard and the concentrationcamp inmates who producedthe fake money. Throughoutthe summer and fall of 1945,they crisscrossed Europe tointerrogate witnesses, includingObersturmbannfuhrer JosefSpacil, Kruger's commandingofficer at Sachsenhausen.15McNally also tried to raise thecrates of money that the Ger-Mans had reportedly dumpedinto Lake Toplitz, but a specialteam of US Navy divers foundnothing.'" (U)

Drawing on support from theUS Army's Counter IntelligenceCorps (CC), the OSS, and theUS Navy, McNally wrapped uphis investigation by early 1946

•Pr...,-Vt.pd-r.teraplete.d an.exterisivereport on the history of Opera-tion Bernhard and the knowndisposition of the false cur-rency. "Thus," he wrote, "in

11 Transcripts of interviews with formerconcentration camp inmates are foundIn the McNally Report. The apprehensionof Spacil by the OSS is recounted inCapt. F. C. Grant, SCI Detachment, Sev-enth US Army, to Commanding Officer,SCI Detachment, Twelfth Army Group,"Weeldy Report," 16 June 1945, LSX-002-616, in WASH-REG-INT-163, RecordGroup 226, Records of the Office of Stra-tegic Services, Box 276, (no folder listedNAFtA (hereafter cited as RG 226, OSSRecords, NARA). (U)

The OSS set out to locatemembers of OperationBernhard who couldpinpoint hidden Naziwealth before it couldfinance underground

resistance efforts.

99

disorganization, flight anddestruction, ended the mostelaborate and far reachingscheme that an invading armyever devised for the wholesalecounterfeiting of the money andcredentials of other coun-tries?" The US militaryreturned the counterfeit Britishcurrency to the Bank ofEngland and dosed its file onOperation Bernhard. Only smallamounts of forged Americanmoney Were ever found.. As faras the American military wasconcerned, Nazi Germany'scounterfeiting activity became acurious footnote in the annalsof the war. (U)

16 Capt, McNally to Capt. W. A. New, USNaval Forces, Germany, "Recovery ofEnemy Materials and Equipment fromInland Waters In Germany and Austria,"

_ 26 September 1945; Capt. New t6 Capt.McNally, "Enemy Materials and Equip-ment from Inland Waters In Germanyand Austria, Recovery of," 11 September1945; and J. H. McDonald, US Naval ShipSalvage Group, to Cdr. R. P. McDonald,4July 1945, in RG 260, OMGUS Records,Office of Finance Division and FinanceAdvisor, Central Files of Foreign Ex-change Depository Group 1945-50, Box451, File 950.31, Currency—Counterfeit1945, NARA. (U)"McNally Report, pp. 1-11, with attach-ments and addendum. (U)

OSS Seeks the Kingpins (11)

As the war closed, the OSS, too,set'out to locate members ofOperation Bernhard who couldPinpoint hidden Nazi wealth -before it could be used tofinance underground resistanceefforts. Working at the same

, time as, and on occasion incoordination with, the McNallyteam, OSS/X-2 (counterintelli-gence) already had several hotleads by mid-May 1945. 1st Lt.Alex Moore, an OSS officerassigned to the Sixth ArmyGroup's Special Counter Intelli-gence (SCI) detachment, wasthe first OSS officer assigned tothe counterfeiting case. He tookKarl Friedmann, a captured SSofficer and member of Opera-tion Bernhard, to Rosenheimnear Munich to pick up GeorgeSpitz, a 52-year old AustrianJew whom Friedmann had fin-gered. A prewar art dealer who-had lived in the United States asa youth, Spitz was identified asone of the distributors of thecounterfeit funds. Spitz admit-ted to Moore that he hadworked for the Germans, butclaimed that it was under duressbecause he feared arrest by theNazis. 18 (S)

SCI Sixth Army Group, "Interrogationof Subject, George Spitz," 16 May 1945,(S); and SCI Sixth Army Group, "Sale ofForeign Currency by the RSHA," 17 May1945 (S); and SCI, Sixth Army Group,"Agents Used by Lieutenant Moore, SCI6 AG." 17 May 1945 (S), In George Spitz,File C. J po Records. (S)q

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Salt ws Lams in northern Italy;—Schwendcounterfeit money. (II)

Spitz soon provided extensiveleads into the Nazi campaign toundermine the Allies' monetarysystems. He recounted to Moorehow he had escaped from theNazis and then obtained falsedocuments from a corrupt SSofficer, Josef Dauser, and hissecretary, Bertha von Ehren-stein, who worked for the Naziforetop, tatelligence kervice•.Munta nia-diiiiiêa to have-met a German named WendigIn Munich in 1943, who askedhim to travel to Belgium to pur-chase gold, Jewelry, andpictures. Spitz made six tripsand exchanged some 600,000marks worth of counterfeitEnglish pounds. Moore interro-gated both Dauser and hissecretary to check Spitz'saccount. 19 (S)

Moore's investigations contin-ued to bring out new details ofthe Nazi counterfeiting opera-

's headquarters for the tlimributkut of Nazi

don. By the end of May. theOSS officer had pinpointedFriedrich Schwend (sometimesspelled Schwendt) as Opera-tion Bernhard's pointman forthe distribution of bogus moneyand identified his various covernames, including Dr; Wendigand Fritz Klemp. 2" According toOSS sources, Schwend hadworked from Schloss Labers innorthern Italy—the same loca-tion reported by the Hungarianchauffeur—and used couriers tosow counterfeit money through-out Europe. Although not amember of the SS, he took therank and identity of SS Stur-mbanrifiihrer Dr. Wendig who

19 'Interrogation of Bertha von Ehren-stein," 25 May 1945; 'Additional State-ment of Mrs. Von Ehrenstein," [undated);and "Memorandum on Schwend aliasWendig ," 30 May 1945, (no classificationlisted), in Spitz, Filt r_ DO.11Records. 00,

had died in an Italian partisanattack in 1944. Schwend's cas-tle was guarded by a detail ofWaren SS soldiers and identi-fied as Sonderstab-General-kommenido III GermantschesPanzerkmps, the Special Staff ofthe Headquarters of the ThirdGerman Armored Corps. (U)

Schwend apparently retained .one-third of the profits derivedfrom the sale of the counterfeit'money. He and his underlingsused the fake cun-ency to pur-chase luxury items on the blackmarket as well as to buy weap-ons from Yugoslav partisansanxious to make money fromthe arms provided by. the Brit-ish and Americans. TheGermans, in turn, sold theAllied equipment to pro-Nazigroups in the Balkans. Moneydistributed by Schwend alsowent to pay German agentsabroad—Elyesa . 13azna, afamous German agent in Tur-key known as CICERO, was

.5, Born in 1906 artd a member of the .Nazi party since 1g32., SChwend lived acharmed life. A businessman who hadsettled in Abbazia, Italy, Schwend hadmarried a wealthy German woman in1929 whose aunt resided in Argentina.Drawing on family ties, he managed theaunt's business in Latin America and'es-tablished numerous contacts throughoutEurope and the Americas. In the 1930s,Schwend also established himself as anarms dealer and provided aircraft andother weapons to China. At the outbreakof the war, his contacts and travels drewthe attention of the Gestapo and he wasarrested as a suspected Allied agent andextradited to Germany from Italy. Sch-wend's time in prison was short, howev-er; he was released to become theleading salesman of counterfeit curren-cies from Operation Bernhard. (U)

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4 6

paid in false Rrixish currencyproduced by Operation 13ern-hard. 21 (LI)

Schwend's job was not withoutrisks. The Gestapo was on thelookout for counterfeiters andblack . marketers and sometimes

• apprehended Schwend's men. by accident. Rivalries amongsenior German SS-officers, •including Himmler, ReinhardHeydrich (first head Of theRSHA), Heinz Jost (first head ofRSHA's foreign intelligence sec-tion). Ernst Kaltenbnmner(Heydrich's successor as RSI IAchief). Heinrich Mueller (head .'of 'the (estapo), Otto 0111e:i-dol-I (head of another RSI IAsection), and Walter Schellen-berg (jost's successor in theforeign intelligence section).impacted On many aspects ofOperation Bernhard. Main-stream German bureaucracies,including the Foreign Ministryand Reichsbank, vehementlyopposed any tinkering with themonetary systems, even thoseof the enemy. As it turned out,

cqunt.e.rfeitpounds destabilized the alreadyfragile economies of severalfriendly countries, Italy in par-ticular. (U)

As the OSS pieced together theOperation Bernhard network, itmade plans to apprehend thoseparticipants not already in cus-tody. 12 On 18 May, Spitz ledMoore to Prien, where they

11 Richard Wires, The Cicero Spy Affair.German Access to British Secrets inWorld War 11 (Westport: Praeger, 1999),pp. 85-96. (U)

Rivalries among seniorGerman SS

officers... impacted on- many aspects of

Operation Bernhard.

9 9

located a large collection oftrunks and crates belonging toSchwend. Schwend. however,was nowhere to be found.2-4Spitz also helped Moore collarpersons on the Allies' Wantedlist not associated with Opera-tion Bernhard, includingleinrich Iloffinann, Hitler's per-

sonal photographer. and-LoomisTaylor. the American "Lord HeeI law: a Nazi collaborator closeto Hitler. (5)

On 10 June, the OSS reportedthat it had arrested Schwendand started to interrogate him togain further details about whatit called the "RSHA Financial

•Operation." 21 The Americansinitially held Sehwend at theSeventh Army InterrogationCenter in Ludwigsburg. Describ-ing Schwend as a "mechanical

" 1st U. Charles Michaelis to Command-ing Officer. X-2/Germany, "PreliminaryStatement of Agi Zelenay In Connection

-_ with RSHA Operations," 4 June 1945;Michaelis to Commanding Officer, X-2/Germany, "Continuation of the State-ment by Agi Zelenay," 26 June 1945; andMichaelis to Commanding Officer, X-2/Germany, "RSHA Financial Opera-tions," 5 June 1945 (no classificationslisted), in Spitz, File

,...1.1COCCN,0)13 Moore to Commanding Officer, SCI,Sixth Army Group, "Financial Opera-tions of RSHA Amt VI," 22 May 1945 (noclassification listed), in Spitz, File C..

DO Records. kg)

engineer, - the Center's recordsnote that he "bought machin-ery and tools for factories:Whether the Army listed Sch-werid in this category out ofignbrance or for other reasonsis not known. Shortly afterwardOSS officers removed Schwendfrom the Interrogation Centerand placed him in Munich's Sta-delheim prison where heremained for three weeksbefore he relented and spoke tohis captors. 2i (U)

Meanwhile, Moore had beentransferred back to the United

'States and Capt. CharlesMichaelis, an X-2 case officerfor several OSS double agentoperations in France during thewar, began to handle Spitz andSchwend. Spitz impressedMichaelis as "reliable, trustwor-thy and intelligent... [and]

11 Numerous documents pertaining tothe RSI IA Financial Operation, Spitz.Schwend. and other members of Opera-tion Bernhard are located in the declas-sified OSS records at the NationalArchives. Spitz's classifiedafile ismore complete, containing many earlyOSS reports on the RSHA Financial Op-erations. (S)

Weekly Status Reports for the SeventhArmy Interrogation Center (SAIC) com-manded by Maj. Paul Kubala are foundin Record Group 338, Records of United

.States Army Commands, 1942-, Recordsof the European Theater of Opera-tions/US Forces European Theater,Records of the Seventh Army Interroga-tion Center, Box 74, Folder 2, NARA. In-terestingly, Schwend's departure fromthe SAIC is not found in the Daily Status.Reports for that period. The Center pre-pared hundreds of interrogation reportsfrom April until its disbandment in Octo-ber 1945. Schwencl's name does not ap-pear in the index of any of these reports.See Seventh Army Interrogation Center,Index of SA1C Reports (6 April 1945 -2 October 1945) in Box 73. (U)

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willing to cooperate." ' In aneffort to get Schwend to talk,Michaelis took Spitz to Stadel-heim prison. Spitz "persuadedSchwend that his best chancewould be to confess his activi-ties with the RSHA and tocooperate with us." The OSSjudged that "Spitz is primarilyresponsible for the success ofthis mission." 27 (S)

As an initial act of good faith,Schwend agreed to turn over tothe OSS all of his "hidden valu-ables." Michaelis and Capt. EricTimm, the X-2 chief in Munich,accompanied Spitz and -Schwencl to a remote locationin Austria in July 1945, whereSchwencl uncovered more than7,000 pieces of French and Ital-ian gold that he had buriedonly days before the end of thewar. Michaelis reported thatSchwend estimated that thegold, which weighed over100 pounds, had a value of$200,000. Michaelis recognizedthat the "money constituted apossible threat to Allied secu-rity as it could have been usedto finance anti-Allied activi-ties." 28 (U)

26 Capt. Michaelis to Commanding Offic-er, X-2/Germany, "George Spitz," 25Tune 1945, X-645 (S), in Spitz, File LI

DO Records. For informationabout Spitz's use by OSS and the em-ployment of other Operation Bernhardpersonnel, see Capt. Michaelis to Com-manding Officer, X-2/Germany, "Situa-tion Report on Prospective PenetrationAgents," 29 June 1945. LMX-002-629 (S),in DO Records, Job C— jBox 3,Folder 21, CIA Archives (hereafter CIAARC). A copy is also filed in Spitz, File

DO Records. OSS head-quarters in Germany approved Spitz'suse on 12 July 1945. (S)

44Schwend uncovered

more than 7,000 pieces ofFrench and Italian goldthat he had buried onlydays before the end of

the war.

9,With one successful missionunder its belt, the OSS began touse Schwend as a "bird dog" forother hidaen assets. In late July,Timm and Michaelis took Sch-wend and Spitz to Merano tovisit Schwend's former head-quarters. The Army's CounterIntelligence Corps had alreadyrounded up several of Sch-wend's employees who hadremained in Merano, hut CICreported that the detainees didnot have a clear picture of theoverall counterfeiting opera-tion. 29 Nonetheless, after furtherinterrogation of one of Sch-wencl's staff still in Merano, the

27 Capt. Michaelis. SCI Detachment/Mu-nich to Commanding Officer, OSS/X-2/Germany, "RSHA Financial Opera-tions," 20 July 1945, LWX-50, in WASH-REG-INT-163, RG 226, OSS Records,Entry 108A, Box 287 (no folder listed],NARA. See also, Capt. Timm to Chief,X-2/Germany, "RSHA Financial Opera-tion," 20 July 1945, with copies of re-ceipts; and Capt. Timm, Capt. Michaelis,1st Lt. Stewart French, and Mrs. JaneBurrell, Memorandum for the File,"RSHA Financial Transactions," 19 July1945 (S), in Spitz, File c. DORecords. (S)2' Ibid.29 1" Lt. Edward R. Weismiller, Chief, Op-erations, OSS/X-2/Germany to X-2/Washington, "RSHA Financial Opera-tions," 2 August 1945, LWX-61, enclosingMichaelis to Commanding Officer,OSS/X-2/Germany, "RSHA Financial Op-eration," 28 July 1945, in WASH-REG-INT-163, RG 226, OSS Records, Entry108A, Box 287, [no folder listed), NARA.(U)

OSS was able to recover nearly$200,000 worth of gold, Ameri-can currency, and diamondrings. (U)

By then, both Spitz and Sch-wend had clearly demonstratedtheir value to OSS. According toMichaelis, Schwend added tohis laurels by writing a historyof Operation Bernhard. 3° (U)

Shifting Gears (U)

As tensions mounted betweenEast and West during the earlyCold War, American intelli-gence began to use severalformer members of OperationI3ernharcl as agents to collectinformation extending beyondtheir wartime activities. InAugust 1945, Timm reportedthat "it has been for sometimeapparent that a well-balancednetwork of counter-intelligenceand counter-espionage agentsmust include persons from allspheres of activity." Timmobserved that "the implementa-tion of the penetration agentprogram wherein the use offormer GIS (German Intelli-gence Service) personalities iscontemplated remains of criti-cal importance." With an eye toa resurgent Nazi party, theMunich X-2 chief commented,"such persons are of impor-tance because they are in aposition to recognize other GIS

3° Schwend's report has not survived(U)

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46

personalities and are logicalcontacts for any illegal resis-tance group." 31 (S)

To target the resurgent Nazimovement, X-2 recruited some13 agents in Munich and had .another dozen under consider-ation. 32 Spitz and Schwend wereamong Timm's stable of assets.Schwend, in turn, brought otherOperation Bernhard associateson board, including George Srb,a Czech, and Guenther Wis-chmann, his "salesman" inSlovenia. Wischniann had beenarrested in June 1945, butMichaelis was able to obtain hisrelease from prison. '3 (S)

Timm used Spitz, coclenamedTARBAI3Y, in a variety of ways,although initially he was nottasked as a regular agent. In

OSS/X-2/Germany to X-2/Washington,"Semi-Monthly Operations Report, SCIMunich," 22 August 1945, LMX-010-815(S), enclosing SCl/Munich to Command-ing Officer, OSS/X-2/Germany, "Semi-Monthly Operation Report SCI Munich,"15 August 1945 (S), in po Records, JobC. Box 3, Folder 21, CIA ARC.(S)32 SCI Detachment/Munich, to Com-manding Officer, OSS/X-2 Germany,"Semi-Monthly Operations Report, SCIMunich," 31 August 1945, G-TSX-2891(S), in pp Records, Job C. Box3, Folder 21, CIA ARC. (b)33 Security Control (the successor to X-2in the new Office of Special Operations,or OSO) in Munich eventually droppedSrb, because of his black market activi-ties and his denunciation by the Czechgovernment as a German collaborator.Wischmann, a sub-source of Schwend's,traveled throughout Germany and Aus-tria, but X-2 in Munich did not use himas a "full-time agent" because of suspi-cions about his dealings on the blackmarket. See various reports in GuentherWischmann, File DORecords. (S)

During the early ColdWar, American

intelligence began to useseveral former membersof Operation Bernhard as

agents to collectinformation extendingbeyond their wartime

activities.

99

September 1945, Spitz sup-ported an OSS effort to enlistreleased business and bankingleaders to provide informationon the financial aspects of ille-gal Nazi activities within

postwar Germany. 31 Timm feltthat Spitz had "an encyclopedicknowledge of all figures of anyimportance in industry and eco-nomics throughout Europe."35The Munich X-2 chief recorded

" Timm to Commanding Officer, OSS/X-2/Germany, "Semi-Monthly Opera-tions Report, SCI Munich," 15 September1945, G-TSX-3310 (S); Timm to Com-manding Officer, OSS/X-2/Germany,"Semi-Monthly Operations Report, SCIMunich," 30 September 1945, G-TSX-1747 (s ), both in DO Records, jot

, Box 3, Folder 21, CIA ARC; .1'D. Sidney H. Lenington, Deputy Chief,SSU/X-2/Germany to X-2/Washington,"Semi-Monthly Reports," 12 December1945, LM1X-005-1130, enclosing Timm toCommanding Officer, SSU/X-2/Germa-ny, "Semi-Monthly Operations Report,SCI Munich," 31 October 1945, LMX-005-1130, in WASH-REG-INT-163, RG 226,OSS Records, Entry 108A, Box 275, [nofolder listed], NARA. (S)35 Lenington to X-2/Washington, "Semi-Monthly Reports," 12 December 1945,LMX-005-1130, enclosing Timm to Com-manding Officer, SSU/X-2/Germany,"Semi-Monthly Operations Report, SCIMunich," 31 October 1945, LMX-005-1130, in WASH-REG-INT-163, RG 226,OSS Records, Entry 108A, Box 275, (nofolder listed), NARA. (U)

in late October 1945 that"TARBABY will prepare andsubmit regular semi-monthlyreports on financial and eco-nomic matters, as well as otheritems of interest which he canobtain." In this capacity, Spitzprovided information on theGerman Red Cross and theBavarian Separatist Movementin southern Germany. 3" (S)

By November 1945, Michaelisand Timm had been reas-signed, leaving Sgt. BoleslavHoltsman as X-2's lone repre-sentative in the Bavarian capital.Holtsman used Schwend toobtain a variety of reports onpersons who "might be used bythe American intelligence insome way." 37 Additionally, Sch-wend told Holtsman about theorganization and structure ofthe Czech intelligence serviceand the exploitation of Jewishrefugees by the Soviets. 38 Holts-man was impressed withSchwend's work in Munich andcommented, "His knowledge ofpersonalities and underground

Lenington to X-2/Washington, "Semi-Monthly Reports," 12 December 1945,LMX-005-1130, enclosing Timm to Com-manding Officer, SSU/X-2/Germany,"Semi-Monthly Operations Report, SCIMunich," 15 November 1945, LIAX-005-1130, in WASH-REG-INT-163, RG 226,OSS Records, Entry 108A, Box 275,NARA. (U)32 Quote found in AB-43 Noltsman], "Dr.Robert Scherkamp, Munich, Fuchsstr. 5,"30 August 1946, MSC-332, LWX-002-916a(5), in Schwend, File c_ . DORecords. Examples of criwencl's report-ing on various personalities are in Sch-wend's 201 file. (S)

Reporting on the Czech services andSoviet targeting of Jewish refugees isfound in Schwend, FileDO Records. (S)

SECRET//X1 49

6 6

P .( All) N ill Ital y . Yognslavi.i, and

Germam . Vt•IV

reflective of his -Abilit y 0)

get information. X-2 gave. Sch-

wend the coclenaine 1-113S1-1. (S)

Balancing Ends and Means(U)

Given their wartime affiliationsand postwar Opportunism, noneof X-2's assets had clean back-grounds. In the ruins of•Fairope.the agents access to sourcesand the pressing need for intel-ligence outweighed concernsabout their tainted reputations.(S)

Nonetheless. files continued tofill with damaging infOrmationas postwar debriefings pro-ceeded. Walter Schellenberg,RSHA's foreign intelligencechief, was among those whosurrendered in 1945. Trans-(erred to Great Britain forinterrogation, he offered theAllies a window into GermanOperations from the highestvantage point. Schellenberg toldhis captors about the intriguesthat had riddled the intelli-gence and security organs ofthe Third Reich and filled in thegaps about Operation Bern-hard. He claimed to have grown

!l9 X-2/Germany to X-2/Washington, "Re-view of Activity since 10 December 45 to10 September 46," 17 SepteMber 46, I.-010-910, enclosing A13-43 IHoksman),Munich to AB-5I (Henry Heckshed,American Zone, "Review of Activitysince 10 December 1945 to 10 Septem-ber 1946," 10 September 1916 (S), in DORecords, Job c_ 3 Box 1, Folder14, CIA ARC. (S)

Given their wartimeaffiliations and postwaropportunism, none of

[the US intelligence]assets had clean

backgrounds.

9

incensed at the latitude that

Schwend en lo Y ed in dispensingfalse British currency anddescribed him as -one of thegreatest crooks and imposters.-Because Schwend marketedsome of the false money in ter-ritories conmilled Ii yGerman's. Schellenberg said thatthe Reichsbank itself ended upI uying some of the counterfeitcurrency." (S)

Neither Schwend nor Spitzmaintained a low pn dile in theruins of Munich and they soon

-attracted attention. Spitz becamea well-known figure in earlypostwar society circles. As X-2'ssole representative in Munichfor most of the period between1945 and 1947, Holtsman -needed to maintain good rela-tions with local officials.According to a 1947 report, hefound Spitz's parties to he anexcellent way to meet thesenior Americans in charge ofthe city's military government.41In turn, Holtsman assisted Spitzin obtaining a vehicle and sup-

X-2/London to X.2/Washington, In-terrogation Report on Schellenberg, 27June-12 July 1945," 2 November 1945,XX-9667 (S), enclosing a copy of theBritish interrogation repon. WalterSchellenberg, File DORecords. (S)

inc-c I It illsitiat) did riot

much gititlatio.... C Cl sop-

'mit. 10.. [tad scroungL . kir

am! ()%vn oricra -

itms. (S)

It did not take long, however,kw Spit? '5 past to catch up withhim. The mach reprtsent;Itiveat Munich's Central CollectingPoint—which handled anrecovered from the Nazis---:listed several pieces of art andtogs that Spitz had sold to Sch.wend during the war. In

November I9i6, lidwin Rae, thechief of the Monuments, FineAns. and Archives Section ofthe military government inliavaria requested that (IS

authorities in Italy assist intracking clown looted Dutch artin that country, to include a

Security 0mm/1/American Zone. toForeign Branch M air Security Con-(RA/Washington, -Vresent C1)11IaliS CII. SCMunich, Munich," (true names), .24 March 1947, FS1/0-1535 (S);SCB/American Zone to Foreign BranchM for SC/Washington, -Present Contactsof SC Munich," (cryptonyms), 19 March1947, HSC/OPS/34, FSR0-1545:.SC/American Zone, to Foreign Branch Mfor SC, "Discontinued Contacts of SCMunich," (true names), 24 March 1947,FSRO-1548 (S); and Chief, SC/AmericanZone, to Foreign Branch M, for SC, "Dis-continued Contacts of SC Munich,"(cryptonyms), 19 March 1947,HSC/OPS/33 (5), all in DO Records, JobC.. -.7 Box 514, Folder 4, CIA ARC.(Hereafter cited collectively as "SC Mu-nich Present and Discontinued Con-(acts.") (S)42 Holism:1, Refugee Control Unit, toWhom It May Concern. "Transportation,Supplies," 15 January 1947, and Holts-Ill n , Itelitgee Control Unit, to Verkehrs-direktion, "Provision of Tires,' 29 May1947, in Spitz. File C, —7 DORecords, (S)

50 SECRET/fX1

ott...11t 1//A1Nazi Forgers

seardi of Sch\\ end's last-I;no■\ nlocation in norther. ' n It uI." I)

In Octoher 9•iT, II. I. Stach.another Dutch investigator.qUestionecl SOCA at his :louse inMunich about his activities ii)Holland during the war. Accord-ing to StaCh. Spitz "becamefuriotts - and demanded toknow why he was being soughtafter. when he was ajeW whohad been in the "under-ground." Spitz produced aSCI-Henlhef 1945 letter of refer-ence tic ni X-2:s Capt. Timmand also told the investigator toCheck with I loltsman. Stach.however, continued to distrustSpitz and commented. it iN ccl

great importance that -this casesl add be handled very care-fully. Spitz is one of (he greatestswindlers:" In January 1918.Spitz again fell under suspicit

n' his nth: in the looting of artIn Europe during the war.Then, a year later, he drew

0 Edwin C. Rae. atief Monuments. FineArts, and Archives Section. RestitutionBranch, Economics Division, Office ofMilitary Government tor Bavaria. to OM-CUS, Economics Division, RestitutionBranch, Monuments, Fine Arts, and Ar-chives Section, -Art Objects of Dutch Or-igin, now in Italy," 18 November 1946,enclosing R. F. I'. de Beaufon, DutchRepresentative, to Mr. Rosenbaum, "Res-titution of Art Objects in Italy to theNetherlands," 18 November 1946, in HG260, OMGUS Records, Records of Muse-um, Fine Arts, and Archives Section, Res-titution Research Records, Box 484, (nofolder listed', NARA (hereafter cited as

• HG 260, OMGUS Records, MFAA Sec-tion, Restitution Records Research,NARA). (U)14 H. J. Such to Stewart Leonard. "Inter-rogation of George Spitz, Opitzstr. 4,Munich," 28 October 1947, in HG 260,OMGUS Records, MFAA Section, Restitu-tion Records Research, NARA. (U)

high-level :Mention hecaoscallegJtions that lie \\ orisk'cl in

t\ iii hlacls svith

Augu st Len/. a hanl:er ancl'twiner ()`,S :igen( ". (S)

Fin:tlly. in the spring of 1947,Hohsman dropped Spitz as anagent. terming him a SCCUrit

Two years later. the CIAterselv summed up the rea.sonsin a cable: "'Spitz's) activitiesIhilland and Ilelgiuni during

neet satisfactorily clari-fied... Services both Spitz ;incltenz minimal and reports- prais-ing their services need grain ofsalt. Both believed Ito he)opportunists who made mostloll connections with Americanofficials to further personalpositions, which INverel (pikeprecarious linl e:trly clays killoccupation since il I WaSi knownthat Spitz particularly hadserved us agent for SI) Ihn'eign

For numerous cables between the CIAin Cermany and Washington about Spitzin 1941. see Spitz, File c —3 DoRecords. Sec also Lt. 4'. N. E. haudottin.Belgian Representative. to Fierben S.Leonard. Chief, MFAA Section, informa-tion Concerning the Spitz Case,' 5 Au-gust 1948. in 11G 260, OMGUS Records,MFAA Section, Restitution Records Re-search. NARA. (5)

In August 1945, August Lenz hadworked with X-2 to gain the release ofthe head of the Bavarian Red Cross, awealthy countess who had been arrestedby C1C alter an anonymous denuncia-tion. Later, he was involved in the INCAoperation and also helped to manufac-ture the false Czech and • Polish docu-ments Mat American intelligence used toevacuate Ana to! Granovsky, one of thefirst Soviet defectors. See various cablesin Spitz File DO Records.For details (inc the detection, see Attic totGranov.sky, I Was a NKVD Agent: A 7bpSoviet Spy Tells His Story (New York:Deein-Adair, 1962). (S)

intelligence service' and pc ).■tii-l ' iv (;vsl'11)"•-'s (5)

Schccs'c_'iic_i also ainactedtin y . In Fehruatv 19aT. theCentral Intelligence Group inC. _7 reported that IS mililarYcounterintelligence personneland the Italian police hadI .aided a number of buildings inCs lera no in 1946. including Sch.wend's old headquarters atSchloss Label-s. The raid nettedlarge quantities of counterfeit

•pound notes, which led theAmericans to believe that theGermans had 2 plant still pro-ducing counterfeit dollars andpounds as well as US militaryoccupation script." (S)

In 1947, Schwend's situationbecame more precarious whenit was discovered that he haddefrauded what appears to havebeen the Gehlen Organization,the nascent West German intel-ligence service, then under USArmy sponsorship. In early1947, Holtsman attended a partyin Munich where Schwend

r SC/American Zong.to Foreign BranchM. "Progress of Munich Operations,"15 May 1947, HSC/0PS/33, PSRO-1796(S), in DO Records,Job .= Box516, Folder 5, CIA ARC, (5)

Cable, Special Operations to Karlsruheand Munich, 11 May 1949, Washington3385. OUT 81161 (S), in Spitz, File C.

DO Records. As late as 1959,the US Army and the West German Fed-eral Intelligence Service sought inforrna-

•tion from the CIA about Spitz. 13y thattime, the Agency had lost track of theAustrian Jew who played both sides. (S)r" Intelligence Report, External SurveyDetachment, Rome, "CounterfeitingPlant in Milan Area," 11 February 1947.PIR-1005 (S), In DO Records, Joh C.

Box 288, (no folder listed), CIAARC. (5)

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SECRET/fX1Nazi Forgers

announced that he would soontake a trip "to visit his family inItaly." From there, he tied toSouth America. He later wrotetwo letters to Holtsman fromabroad, noting that he would"always remember the Ameri-cans for the kind treatment hereceived." 50 Using the name ofWenceslau Turi, a Yugoslavianagricultural technician, on a RedCross passport issued in Rome,Schwend and his second wifearrived in Lima, Peru, aftercrossing the Bolivian border inApril 1947. The new immi-grants declared their intentionto take up farming.' In fact,Schwend went to work forVolkswagen in Lima and alsoserved variously as an infor-mant for several Peruvianintelligence and security ser-vices. 52 (S)

Schwend's past caught up withhim in South America. In early1948, Louis Glavan, who had runSchwend's affairs in Yugoslaviaduring the war, denounced him ina letter to Gen. Lucius Clay, theUS military governor of Ger-many. Schwend had describedGlavan in glowing terms to USintelligence in 1946, but, clearly,the two men had had a fallingout. 53 In Glavan's letter to Clay—subsequently sent to the Euro-

50 See "SC Munich Present and DisCon-tinued Contacts." (S)51 "Suspicious Personalities-WenceslauTuri and Hedda De Turi," 17 February1948, TPL-263 (S), in Schwend, File C

DO Records. (S)Unsigned Memorandum for the

Record, "Fritz Paul Schwend," 7 Febru-ary 1963 (S), in Schwend, File C.

DO Records. (8)

66Years later, reports of

Schwend's counterfeitingactivities, drug

smuggling, and armsdealings throughout

Latin America attractedthe attention of

numerous intelligenceagencies.

99pean Command's Office of theDirector for Intelligence and theCIA—he claimed that Schvvencland his wife had moved to Limausing false identities and were liv-ing from proceeds . derived fromcounterfeit. RSHA funds. Further-more, Glavan fingered Spitz asthe individual who had per-suaded the Americans not toinvestigate Schwend for his Naziactivities." After a preliminaryinvestigation, the CIA concludedthat the allegation "comes from aperson who ... may possibly bedenouncing Schwend for per-sonal or business reasons. Thus,the reliability of that informationshould not be taken at its facevalue until confirmed by othersources." 55 The Agency told the

53 In 1946, Schwend had described Gla-van as "capable, intelligent, dependable(though, no doubt, without regard forlaw or regulations), and (a) daring manopen for any proposition... Smuggling isGlavan's trade, and he can smugglethings, news or people and keep hismouth shut." Munich, AB-43 (Holtsman),"Louis Glavan," MSC-283, 16 August1946 (S), in Schwend, File C., _.3DO Records. (S)54 See various 1948 cables in Schwend,File C._ .1 DO Records. (S)55 Foreign Branch M to Chief of Station,

"Fritz Schwend," 5 February 1948,TPL-W-275 (S), in Schwend, File

DO Records. (S)

Army in _jai-Willy 1948 that it hadno contact with Schwend and hadnothing to do with his immigra-tion to South America. (5)

Years later (U)

In the 1960s, reports of Sch-wend's counterfeiting activities,drug smuggling, and arms deal-ings throughout Latin Americaattracted the attention of theCIA, the US Army, the US SecretService, the British IntelligenceService, and the West GermanFederal Intelligence Service. AWest German informant in Alg-iers in 1966, for example,claimed to be able to providefresh samples of bogus dollarsproduced by Schwend inexchange for "financial help."56The CIA directed a source inthe Peruvian InvestigationsPolice to pursue the lead. Sch-wend denied any currentcounterfeiting activity, butdivulged his wartime role to thePeruvians. When pressed, hecontinued to deny knowingwhere the plates for the Britishcounterfeit pounds from Opera-tion Bernhard were buried,although he said he suspectedthat they might still be locatedwith a cache of RSHA chief

56 Cable, 7 to Director, Bonn, InfoM 25 November 1966 ,1. .J 802g

IN 46069 (S), and Cable,E.....T to , C.. -3Info Bonn, Director, 28 November 1966,

.2 0063, IN 47738 (S), in Schwend,File C_ DO Records.

52 SECRET//X1

SECRET//X1Nazi Forgers

Kaltenbrunner's papers near.Lake Toplitz in Austria. 57 (S)

In 1969, a trace done by the USArmy turned up a 10-year-oldreport on Schwend in which theGerman claimed to have written"various American authoritiescharging that, during confine-ment by CIC in 1945, he wasrobbed of a considerable amountof money and that much of hisimmediate personal property wasconfiscated and never returned."Given the late date of Schwend'sallegations, the Army was unableto investigate and found nothingin its files to substantiate them.8(5)

In a bizarre epilogue to a bizarrelife, the Peruvian governmenttook Schwend into custody fol-lowing the murder of a wealthybusinessman in early 1972. Papersfound in the victim's possessionrevealed the extent to which Sch-.wend had blackmailed Peruvianofficials, traded national secrets,and broken currency laws.'yAlthough Schwend was initiallyreleased, his life began tounravel. A Peruvian court subse-quently convicted him ofsmuggling $150,000 out of the

57 Cable, C....3w Director, 11 October 1963,4632, IN 37627 (S), and James Angle-

ton to Chief, United States Secret Service,"Frederick Schwend," 21 October 1963 (S).in Schwend, File C .7 DORecords. (S)

An unconfirmed statement in CIArecords indicates that at least one OSS of-ficer may have materially gained from hiswork on the Operation Bernhard case. SeeHeadquarters Liaison Team, US Army Intel-ligence Center, to Deputy Director forPlans, "Schwend, Frederico (Fritz)," 19 Au-gust 1969 (C), in Schwend, File a

7 DO Records. (S)

country and he was given a two-year prison sentence.'' Then, in1976, Peru deported Schwend toWest Germany, where he landedin jail once again when he couldnot pay a $21 hotel bill!" TheGerman and Italian governmentsstill held a warrant for Schwend'sarrest in connection with a war-time murder, but decided not toprosecute. Schwend was freed,but left homeless. 62 He returnedto Peru only to die in 1980. 63 (S)

Weighing OperationalDecisions (U)

Shortly after the war, the Strate-gic Services Unit wrote aclassified history of the OSS dur-ing World War IL The pursuit ofthe Operation Bernhard counter-feiters was fresh in the minds ofthe compilers who hailed it as agreat success story for the OSSbecause it recovered large sumsof money and other valuables."'Yet for all of the positiveattributes of that financial opera-tion, the project clearly linkedAmerican intelligence with some

'9 The publicity surrounding Schwend's ar-rest exposed infamous SS officer Klaus Bar-bie's hideout in Peru, leading to Barbie'seventual extradition to France in 1983 toface justice for his war crimes. In late 1972,the New York Times, citing a London DailyExpress series on Martin Bormann, report-ed that South America provided refuge forfour major Nazi war criminals: Schwend,Klaus Barbie, Josef Mengele, and WalterRauff. See "Paper Identifies 4 Nazis Said tobe in South America," New York Times,1 December 1972, p. 11. (U)6" Reuters, "Nazi in Bolivia Called Chiefof Peruvian Currency Ring," New YorkTimes, 7 December 1973, p. 7. In addi-tion to Schwend, the Peruvian prosecu-tor indicted Klaus Barbie and four otherindividuals. (U),1 Reuters, "Nazi Forger's Bad Bills," TheWashington Post, 14 July 1976. (U)

Friedrich Schwend in Peru. (U)

unscrupulous characters. Usefulto the Americans in 1945 asEurope lay in ruins and the ColdWar loomed, Friedrich Schwendand George Spitz were among themost prominent of the agents-of-opportunity who—for decadesafter the war—profited from theirassociation with the OSS. Theircases illustrate the perennial chal-lenge of balancing ends andmeans in the complex world ofintelligence operations. (U)

", In 1955, an Italian court had sentencedSchwend in absentia to 24 years in prisonfor having ordered Louis Glavan to killTheophic Kamber, an Operation Bernhardagent who had embezzled some of thecounterfeit money in 1944. While this con-viction was later overturned, Italian offi-cials still sought Schwend's arrest, as didWest German authorities under an Interpolwarrant. Lt. Gen. Marshall S. Carter, DDCIto DD/P, Memorandum Number A-279,1 August 1963, ER 63-6111 (S), in Sch-wend, File C._ DO Records. (S)63 "Nazi Plotted to Cripple British, Ameri-can Economies," Los Angeles Tunes, 7 April1980, p. 22. (U)" Strategic Services Unit, History Project,War Report of the OSS (Office of StrategicServices), Vol. II, The Overseas Target, withnew introduction by Kermit Roosevelt(New York: Walker and Company, 1976),pp. 353-354. (U)

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