The Counterfeiter Who Nearly Collapsed Portugal's Central Bank

In 1925, Portugal faced its most serious financial crisis when a charismatic fraudster flooded the economy with counterfeit banknotes worth £1 million—equivalent to nearly 1% of Portugal's GDP at the time. The audacious scheme, orchestrated by Artur Alves dos Reis, not only exposed glaring vulnerabilities in the country's financial system but nearly enabled the criminal to gain control of the Bank of Portugal itself.

The case sent shockwaves through European banking circles and precipitated a political crisis that ultimately helped pave the way for Portugal's long dictatorship under António de Oliveira Salazar. A century later, the Reis affair remains a cautionary tale about institutional oversight and the catastrophic consequences of unchecked ambition.

Background and Context

Portugal in the 1920s was a nation in turmoil. Between 1910 and 1925, the country cycled through nine presidents and 45 ministers amid extreme political instability, with 25 uprisings and 325 bomb incidents creating an environment ripe for exploitation. The Bank of Portugal, then a private entity responsible for issuing currency, operated with inadequate internal controls and incomplete registers, making it vulnerable to manipulation.

Against this backdrop of institutional weakness, Reis—a dapper, charming con man already convicted of embezzlement—devised his counterfeit scheme. The bank's arrangement with Waterlow & Sons, a reputable British firm that also printed notes for the Bank of England, provided the opening he needed to execute his fraud.

Key Figures and Entities

Artur Alves dos Reis led the operation with an unlikely network of co-conspirators: José Bandeira, a petty criminal from Angola; his brother António Bandeira, a Portuguese official in the Netherlands; Adolf Hennies (real name Johann Adolf Doring), a German war profiteer; and Karel Marang van Ysselveere, a Dutch businessman with questionable credentials.

The group duped Sir William Waterlow, chairman of Waterlow & Sons, into believing they represented a legitimate Dutch syndicate authorized by the Portuguese government to print notes for Angola. According to court records from the subsequent trial, Waterlow failed to conduct basic due diligence by contacting the Bank of Portugal directly before proceeding with the £1,500 printing contract.

Legal and Financial Mechanisms

Reis exploited a critical loophole: while the Bank of Portugal held exclusive rights to issue notes on mainland Portugal, Banco Ultramarino controlled colonial currency distribution. Using forged contracts notarized by French, German, and British consulates, Reis created the illusion of legitimate authority to print 200,000 notes in 500 and 1,000 escudo denominations.

The counterfeit notes arrived in Lisbon as diplomatic baggage in February 1925. Reis employed middlemen to open accounts across Lisbon and Porto, using the notes to purchase foreign currency on the black market. Historical accounts indicate he even treated the notes with camphor, water, and lemon juice to simulate wear and avoid detection.

With his ill-gotten gains, Reis acquired luxury assets—including a mansion now occupied by the British Council in Lisbon—and founded Banco Angola e Metropole. More alarmingly, he began purchasing shares of the Bank of Portugal itself, acquiring 10,000 of the 45,000 shares needed for controlling interest.

International Implications and Policy Response

The scheme's discovery in December 1925 triggered a financial panic, with the Bank of Portugal redeeming 115,577 more notes than it had legitimately issued. The crisis exposed fundamental weaknesses in international banking oversight, particularly regarding cross-border currency production.

Waterlow & Sons faced bankruptcy as a result of the scandal, and Sir William Waterlow's reputation was permanently tarnished. In Portugal, the incident dramatically undermined public confidence in democratic institutions, creating conditions that Salazar later exploited to justify his authoritarian regime, which lasted until 1974.

The case prompted reforms in currency production and banking oversight, both in Portugal and internationally. Modern anti-counterfeiting measures, including centralized serial number tracking and direct governmental verification of printing orders, can trace their origins to lessons learned from the Reis affair.

Sources

This report draws on historical court documents from the 1930 trial of Artur Alves dos Reis, contemporary news reports from Portuguese newspaper Diário de Notícias, Bank of Portugal archival records, and academic analyses of early 20th-century Portuguese financial history. Additional context was provided by the Bank of Portugal's historical documentation and verified historical accounts of the case.