The Portugal Banknote Affair

While spending time in jail for fraud and embezzlement, a young businessman on the verge of bankruptcy devised a plan that would make him within a year the richest man in Portugal. Alves dos Reis’s crime had never been attempted before and it could not be done again. Its fantastic success sent ripples through the highest echelons of business and government in continental Europe and England.

Alves dos Reis in 1925
Alves dos Reis in 1925

Reis’s father was an undertaker whose business ended up in bankruptcy. The young man wanted to study engineering. Reis started his degree but after only a year’s study he abandoned his course to get married. In 1916 he decided to emigrate to Angola which, at the time, was a Portuguese colony. At 480,000 square miles, Angola was almost twice the size of Texas or France. It was mostly agricultural, and exported coffee, cotton and sugar.


Reis forged himself a diploma of engineering from Oxford University. It qualified him in twenty one subjects including Engineering Science, Geology, Physics, Metallurgy and Electrical Engineering. In short, he studied everything and could do anything.

Reis took a job on the railways and because of his extraordinary abilities he was soon Acting Chief Engineer of the Angola Railways. He also built canals, bought and sold crops and war surplus goods.

In 1922 Reis and family, now richer, returned to Portugal and rented a stylish home in Lisbon. He hired a cook, maid, and a chauffeur. He acquired a US car dealership and set up a company to ship goods to and from Angola.

Alves dos Reis always needed new capital and friends introduced him to the Royal Trans-African Railway Company of Angola (Ambaca). He soon discovered that there was $100,000 in the company treasury, lent by the government to pay off bond coupons.

Alves dos Reis had opened a small checking account with the National City Bank of New York. It took eight days for a check issued in Europe to reach New York by sea. With $40,000 worth of such checks, Reis bought control of Ambaca. When he controlled the company’s reserves he was able to cable the money to New York and make good the checks.

Soon, however, Reis was arrested. The charge of embezzlement had been made by three members of the Ambaca Board of Directors. In order to raise money for his defense and restitution to Ambaca stockholders, Reis had to liquidate all his assets. With consent of his placated creditors he was able to get the case moved to a civil, rather than criminal court. He was released after 54 days imprisonment.

During his time in jail Reis conceived of what became known as the Portugal Banknote Affair. It consisted of forging a contract in the name of the Bank of Portugal—the central bank, responsible for issuing banknotes and partly private at the time. The contract would authorize him to print banknotes in return for an alleged loan to develop Angola. His plan was to use the contract to convince a legitimate banknote printing contractor to make the notes.

Reis supposedly represented an international group of financiers who were going to lend Angola $5,000,000. In exchange they were to get the right to issue banknotes for the colony to the value of $5,000,000.

In November 1924, Angola’s finances were at the worst in its 400-year history as a colony. Its currency was not convertible into any European currency, including the Portuguese. Trade was meager, bankruptcy common. Clearly no banker who ever took a good look at the colony’s balance sheet would lend it $5,000,000. Also, the whole idea that a sovereign government should permit an outside group to duplicate its currency for private use was unthinkable.

The contract Reis had drawn contained the following text: “The Bank of Portugal authorises the Government of Angola to cause to be manufactured up to 200,000 banknotes of 500 Escudos and 100,000 of 1000 Escudos. The Government of Angola will endorse Alves dos Reis, Engineer, all the powers relating to the manufacture of Notes.”

Reis took the contract to a friendly notary and had his signature notarized. Then he took it to the British consulate. Each foreign consulate, he knew, had a copy of the official signatures of the Portuguese notaries. The consular clerk, without reading the contract, verified the signature of Notary Avelino de Faria and placed the impressive British consular stamp on the document.

Then Reis forged the signatures of Bank of Portugal officials (he traced them from the currency in his pocket). He appended two new Portuguese banknotes—one for 1000 escudos and another for 500 escudos.

Reis’s key associates, Dutch trader Karel Marang, German trader Adolph Hennies, and José Bandeira (brother of António Bandeira, the Portuguese Ambassador to the Netherlands) later claimed to have believed the project was legitimate throughout.

Karel Marang approached Joh. Enschedé, an old and respected Dutch printing firm for the job. Reviewing the attached sample notes, they said they were the work of Waterlow and Sons of London. Waterlow was a major worldwide printer of currency, postage stamps, stocks and bond certificates. It had around 7,000 employees.

A dividend coupon printed by Waterlow and Sons
A dividend coupon printed by Waterlow and Sons (c. 1900)

On 4 December 1924, Karel Marang approached Sir William Waterlow with a letter of introduction from the Joh. Enschedé company. The two notes Alves Reis had appended to the contract were of the so-called “poet” series; they bore the faces of Luis de Camoes, Portugal’s great epic poet of the 16th century, and Joao de Deus Ramos, a 19th century romantic poet.

When Sir William saw the two banknotes he knew they had been made for the Bank of Portugal by his great London rival, Bradbury Wilkinson. Ordinarily he might have cut short the discussion with the foreigner by advising him to visit the nearby offices of the rival banknote printer. But why throw any more business their way? The two poet notes, he told Marang, had been done by “an American banknote firm.” Technically, he was correct: Bradbury was a subsidiary of the American Bank Note Company.

“A pity,” Sir William went on, “that you didn’t bring us a note that we have made for the Bank of Portugal—the Vasco da Gama 500 escudos note.” He had his secretary bring in a specimen book of banknotes which contained the 500 escudos note.

“This note would do very well,” said Marang.

500 Escudos with a portrait of Vasco da Gama
500 Escudos with a portrait of Vasco da Gama

The visitor stressed the importance of secrecy in the whole affair, particularly since the Banco Ultramarino normally was the only agency that could issue banknotes for the Portuguese colonies. Complicating matters, he went on, was the fact that two brothers, the Ulrichs, were serving as directors of the Bank of Portugal and the Ultramarino. For this reason only the governor of the Bank of Portugal and the deputy governor knew of this deal.

When Waterlow received letters from the Bank of Portugal that authorized the printing—more of Reis’ forgeries—he accepted the contract. When Waterlow realized that the bills had the same numbers as some they had previously printed, they alerted the “bank” (actually Reis). Since the contract had specified that the word “Angola” would be overprinted on the new notes in Portugal, it was not difficult for Reis to convince the London firm that the reuse of existing serial numbers was not a cause for alarm.

Printing banknotes with serial numbers never actually requested by the Portuguese government would have made them easier to detect.

Waterlow and Sons printed 200,000 banknotes of 500 Portuguese escudos (which was close to 1% of Portugal’s GDP at the time). 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 and his partners created the Bank of Angola and 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.

Building of the Bank of Angola and Metropole
Building of the Bank of Angola and Metropole

By investing heavily in land, buildings, and businesses, Reis and Bandeira created a boom in the Portuguese economy. Reis bought a palace in Lisbon, three country estates and spent an enormous quantity of money on jewellery for his wife. In the fall of 1925 Reis and his German associate Adolf Hennies made a tour of Angola, buying properties, investing in corporations, and making development plans.

The final phase of Reis’s 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, he had Bandeira 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 amassed 10,000 of the 45,000 shares needed for controlling interest in the bank.

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.

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 Adolph Hennies in the Reis’s bank 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 the Bank of 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 and Metropole) owned the newspaper O Século (Portuguese for “The Century”). The newspaper assigned its top reporters to dig into the bank.

Journalists asked how it was possible that Reis’s bank gave loans with low interest rates without the need of receiving deposits. It was suspected that the bank was a German front aimed at infiltrating the country.

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 Bank of Angola and Metropole in banknotes of 500 escudos at the foreign currency trading firm Pinto da Cunha. After exhaustive and frustrating investigation, the inspector finally noticed, by chance, banknotes with duplicate serial numbers. Authorities ordered all banks 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
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. Reis 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. Reis was released only in May 1945.

The Bank of Portugal sued Waterlow and Sons in the High Court in London. It was 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 Bank of Portugal, which was awarded £610,392 in damages.

Waterlow and 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, but he was elected Lord Mayor of London in 1929.

When Reis’s fraud became public knowledge in December 1925, it brought about a crisis of confidence in the Portuguese government. This crisis resulted in the nationalist military coup d’état of 1926, that brought the Ditadura Nacional (National Dictatorship) to power, with António de Oliveira Salazar ruling from 1932 to 1968.