A COLOSSAL FRAUD

Evening Star, Issue 23373, 16 September 1939, Page 22

A COLOSSAL FRAUD

THE WATERLOW CASE BANK OF PORTUGAL'S CLAIM HISTORY OF AFFAIR The greatest monetary swindle of modern time£ is that by which a gang of forgers and sharpers succeeded in circulating 209,718 spurious bank notes in Portugal (says a writer in the Melbourne ‘ Age ’). Each of these notes, which purported to be issued by the Banco de Portugal, was of tho face value of 500 escudos. At the exchange rate of 96 escudos to the pound sterling the spurious notes in circulation had a face value equivalent to £1,092,281. .It was impossible to distinguish the spurious notes from genuine ones, for the conspirators bad managed by trickery to get the English firm which had printed the genuine notes for the Banco de Portugal to print notes for them on the same plates, and on paper which was exactly similar. This colossal fraud was ventilated in English courts in 1930, when the Banco de Portugal sued AVaterlow and Sons Ltd., printers of the notes, for the recovery of the sum of £1,100,281. The bank subsequently reduced its claim to £610,392 as a result of the realisation of the assets of the conspirators when arrested in Portugal, where they had started a bank, mainly for the purpose of putting their spurious notes m circulation. SOLE RIGHT OF ISSUE. The Banco do Portugal has the exclusive right, conferred on it by tho Portuguese Government of issuing bank notes for circulation in Portugal, the Azores, and Madeira. Tho Banco National Ultramarine has the exclusive right to issue bank notes in the Portuguese colonies. In 1922 the Banco de Portugal entered into a contract with AVaterlow and Sons to print 600,000 notes each of 500 escudos. These notes were known as Vasco da Gama notes, because they had a portrait of that famous navigator and explorer in tho left-hand corner. Tho dies and plates prepared by AA’aterlow and Sons for printing the notes remained in their possession for subsequent use, should the bank want more notes of the same kind. On December 4, 1924,- a Dutchman named K. Marang van Ysselvcere called at the London headquarters of Watorlow and Sons and interviewed Sir AA’illiam AVaterlow, who was then tho chairman of the company. Mr Marang, ns he was called, was about 35 years of age. He was of prepossessing" appearance; he had charming manners, and he was very well dressed. He made a very favourable impression on Sir AVilham AA 7 aterlow, who neglected to make adequate inquiries into his credentials and into the truth of the story ho told. He said that he represented a Dutch group of financiers who were arranging to give financial assistance to the Portuguese colony of Angola, AA 7 cst Africa. FORGED DOCUMENTS. He produced two forged documents. One of them which purported to be made between the Governor of Angola and Air Alves Reis, acting on behalf of the Dutch syndicate, authorised the syndicate to-print hank notes to the face value of 100,000,060 escudos. The other contract purported to be between the Banco de Portugal, and the Governor of Angola, and- by it the bank authorised the Governor to have tho notes printed. AVaterlow and Sons communicated with their agent in Lisbon in regard to the matter and instructed him to get the Banco de Portugal to give their authority to print the notes for the Dutch syndicate which Marang represented. Tho agent replied that_ he was unable to obtain such authority, as the Banco do Portugal had not the right to print notes for circulation in the colonies. He suggested that Waterlow and Sons should be extremely cautious in their dealings with the Dutch syndicate. But this warning was disregarded when Marang again presented himself in London and told Sir AVilliam AVaterlow that it was necessary to preserve the utmost secrecy in regard to their business together, as only a few of the directors of the Banco do Portugal had been made acquainted with the position in Angola. CHANNEL OF COMMUNICATION. He declared that it was essential that every communication between

Watcrlow and Sons and the Banco do Portugal should pass through Ids hands, so that it might be safely delivered in the right quarter. And with one exception every letter which Watcrlow and Sons sent to the Banco de Portugal at Lisbon was entrusted to Marang. The exception was a letter which, if it had been received by the bank, would have led to inquiries which would have exposed the conspiracy. But the bank officials said that neither this letter nor any other dealing with the negotiations between Marang and Waterlow and Sons was received. It is assumed that Marang or his fellow conspirators found means to intercept the one letter to the bank which was not entrusted to Marang. Waterlow and Sons received a forged reply to it, and as jx result they proceeded to carry out the order given by Marang to print the \notes. A total of 200,000 notes of 500 escudos were delivered to Marang in February and March, 1925. He placed another order for 380,000 notes of the same denomination, and these were delivered to him between August and November of that year. It was mentioned in court that Marang bad not paid the bill for printing the second supply of notes, or that for the suit cases in which they were packed for removal. His unpaid indebtedness to Waterlow and Sons was £486, SAME NUMBERS USED. The fact that spurious notes were in circulation in Portugal was discovered by the Banco de Portugal early in December, 1925, but as these notes were exactly like genuine notes, haw ing-been printed from the same plates' and on paper of the same quality, it was impossible for experts to tell the difference between them. Marang’s ingratiating manner and his plausibility had exercised so much fascination on Waterlow and Sons that he had been able to induce them to number the notes with the same consecutive numbers as genuine notes they had printed for the Banco do Portugal. It was not until the hank discovered two notes with the same number that it was realised one must be spurious. Instead of making public the fact that spurious notes were in circulation which could not be distinguished from genuine notes, the bank decided to call in all 500 escudos notes bearing the portrait of Vasco da Gama. When all the notes came in it was found that 209,718 spurious notes had been in circulation. _ Alves Reis ami another of the conspirators ware arrested in Lisbon, and were sentenced to 25 years’ transportation. Marang was tried at The Hague, and put up the defence that ho had been merely an innocent agent of the conspirators. This plea was accepted, but on some technicality he was convicted, and sentenced to eight months’ imprisonment. The prosecution appealed against this light sentence, and it was increased to two years. “ That, however, was a matter of no moment to Mr Marang, because he was not in Holland at the time,' and he has not been there since,” said Mr Bevan, K.C., in outlining the case for the Banco de Portugal, when its claim against Waterlow and Sons came before Mr Justice Wright iu the King’s Bench Division of the High. Court of Justice, in London, in November, 1930. YEARS OF PREPARATION. It took several years to prepare the case before it could bo brought into court. Nearly all the documents, including bundles of correspondence and various Portuguese statutory decrees, had to be translated. All of the witnesses for the bank were Portuguese, whose evidence with one or two exceptions had to be interpreted. Most of these witnesses were two months in London in connection with the case.

Some of them held high official positions in Portugal, and were accompanied by ‘their personal staff's. In all 9,801 questions were asked and over 600,000 words spoken, A shorthand note of each day’s proceedings was taken, and printed transcriptions were supplied to the court on the following day.

Mr Justice Wright gave judgment for the Banco do Portugal and fixed the damages at £531,351. He expressly stated that no reflection was cast on the integrity of Sir William Waterlow or his firm. The case was “ one of those unfortunate circumstances which overtake the most eminent, distinguished, and high-class firms.” When the ease came before the Court of Appeal Lord Justice Scrutton took the view that the Banco de Portugal had not been defrauded by the circulation of the spurious notes. He held that the damage suffered by the bank was limited to the cost of printing genuine notes to replace those called in. This amounted to about £9,000. “PURE GAIN TO THE BANK.” Lord Justice Greer and Lord Justice Slesscr thought that the bank’s damage should be reduced to a round sum of £300,000 on the ground that the bank could have refused to exchange good notes for bad ones after the discovery of the fraud. This sum of £300,000 represented the majority decision of the Court of Appeal, but the case was taken to the House of Lords. Three of the five Law Lords who heard the case held that the bank had established its claim to the full sum of £610,392 originally demanded, and the other two agreed with Lord Justice Scrutton that the only damage suffered by the bank was the cost ,df printing notes to replace those called in. Sir Cecil H. Kisoh, in his survey of the case in a book entitled ‘ The Portuguese Bank Note Case,’ expresses the opinion that the sums recovered from Waterlow, and Sous and from the liquidation of the assets of the bank founded by the conspirators, “ appear for the most part in the light of pure gain to the Banco de Portugal or partly to the bank and partly to the State.” The loss was ultimately borne by the community in the form of raised prices (caused by inflation of the currency) so that although the total recoveries were equivalent to the injuries received, their distribution had no “ particular correspondence with the incidence of the pecuniary losses.”