The Greatest Fraud Ever? Artur Virgilio Alves dos Reis and the Portuguese Bank Note Affair

"Grunge Flag Of Portugal" by domdeen, courtesy of
“Grunge Flag Of Portugal” by domdeen, courtesy of

In the aftermath of scandals involving Enron, Bernie Madoff and Countrywide Financial, the current period might seem to be uniquely plagued by financial wrong doing. But in sheer scale, it would be difficult to exceed the audacity of Artur Virgilio Alves dos Reis (1898-1955). After dropping out of an engineering program, he traveled to Angola, and used a fake diploma from Oxford to find work. After returning to Portugal, he was soon imprisoned for check fraud, which gave him the time to plan a larger crime. After his release from prison, his background did not stop him from engineering a financial fraud that was so ambitious that it contributed to the collapse of the Portuguese Republic in 1926, which led to the fascist regime of Salazar. In an age in which people doubt if the financial system is adequately regulated, Alves dos Reis perhaps represents a worse-case example.

As M. Teigh Bloom described in The Man Who Stole Portugal, Alves dos Reis’ genius was that he did not counterfeit Portuguese currency. Instead, his cabal persuaded the British company that produced Portugal’s banknotes that they represented Portugal’s government. The company wished for confirmation of this, but they did not contact the government directly, but rather asked the conspirators to furnish documentation. After Alves dos Reis’s group provided forged paperwork, the company (Waterlows) gave the group $100 million escudos, which was the equivalent of roughly one percent of Portugal’s gross domestic product at the time. Alves dos Reis took one quarter of the notes, with which he bought a taxi fleet, farms and jewels. He also created his own bank to launder these funds. Even more ambitiously, he used these funds to try to purchase enough shares to take over the Bank of Portugal, which was the institution that he feared might detect the fraud. Once in control he thought that he could suppress any evidence that wrong-doing had taken place. Even though he purchased many shares, he never achieved his goal. Instead, press coverage into his bank by the newspaper O Seculo led Portuguese authorities to begin documenting the conspiracy’s activities, after which the fraud came apart. Even then, it was not an easy fraud to unmask, because there were no false banknotes to detect. But the serial numbers on the notes matched those on existing notes, which led the government to recall all 500 escudo banknotes, thereby creating a national panic. Alves dos Reis was arrested on December 6, 1925 on board the ship “Adolph Woerman,” which was bound for the Portuguese colony of Angola.

Alves dos Reis had successfully masterminded this entire fraud while a very young man. He was only 28 when he was arrested. His co-conspirators (a German spy and Dutch financier, amongst others) all claimed that they too had been duped by Alves dos Reis, whom they claimed had told them that he was working secretly on behalf the Portuguese government. Given Alves dos Reis’ abilities, this argument persuaded some observers. Not all of the conspirators ever faced justice. Some people were even able to recover from the scandal. Sir William Waterlow, who headed the English printing company, was dismissed as head of the corporation, but then elected mayor of London. But Alves dos Reis was less fortunate. While in jail he tried to falsify documents to prove that the Banco do Portugal was involved in the fraud. When this failed, he tried to commit suicide, but survived. He remained in prison until 1945. At the time of his death in 1955, he was quite poor.

The implications of his crime had been staggering. The First Republic ended in a military coup in 1926. While it would be too much to say that the loss of confidence in Portugal’s monetary system caused Portuguese democracy to collapse, this fraud contributed to the sense of crisis that made the coup possible.

Of course, this fraud was extreme, but in some respects not much less ambitious than the actions of modern criminals. Bank of America is now facing legal action because its unit Countrywide allegedly sold billions of dollars worth of bad mortgages to Fannie Mae and Freddie Mac. Two JP Morgan employees have been charged with crimes linked to a $6.2 billion trading loss at the firm. And accounting fraud ultimately brought down Enron, after the government had permitted the corporation to interpret regulations in a manner that the company favored. In this context, can we be certain that another Alves dos Reis would not succeed with such an ambitious fraud today?

If you are interested in history, you might wish to read my own book on Brazil’s political history.

Shawn Smallman

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