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 ($70 billion today). 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 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 he had drawn 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.