How a crack team of marine experts spent 20 years breaking secret wartime codes and scouring archives to finally trace the £4.5BILLION of British gold sunk by the Nazis

Dressed only in their nightclothes, some clutching teddy bears, others clinging to each other, the tiny occupants of Lifeboat Eight were the first to be lowered from the ship. Suddenly, a rope slipped. For a moment, the boat dangled vertically, spilling its 30 terrified passengers in to the sea, before crashing down on top of them. In the teeth of a North Atlantic gale and in the dead of night, they all disappeared.

They included 13-year-old Gussie Grimmond, and her sisters Violet, ten, and Connie, nine. Their little brothers, Edward, eight, and Leonard, five, assigned to another lifeboat, were never seen again, either. They were 600 miles from land and even further from the parents who packed them off in search of a safer, better life. The Grimmond children, whose home had been bombed to pieces weeks before, were among 262 passengers and crew who would perish on that appalling night in September 1940. Even today, it is shocking to read details of the sinking of the City of Benares, an 11,000-ton British liner hit by a German torpedo while carrying evacuees to Canada. The tragedy would be debated for years. Where was the Royal Navy? How could Germany attack a ship full of children?

Now an intriguing new dimension to the tragedy has emerged. The City of Benares, along with many other ships, may have been targeted for a reason: its secret cargo of gold bullion. After 25 years of research, a group of marine experts has produced a comprehensive and closely-guarded database of secret gold movements from Britain to the U.S. and elsewhere in World Wars I and II. The gold was being sent by both the government and private institutions to pay their wartime bills. But a substantial amount ended up on the seabed, courtesy of the German U-boats which made every trans-Atlantic voyage a game of Russian roulette.

Now some of it may be heading for the surface as the most ambitious treasure hunt of modern times gets underway. For, after painstakingly cross-referring classified Bank of England and government records with new archive material in Britain and overseas, the researchers believe they have pinpointed a series of Atlantic wrecks containing gold with a combined value of at least £4.5 billion. That is just a conservative estimate.

The research also revealed that many of these ships were attacked precisely because of their precious cargo. The enemy had worked out ways to identify which vessels might be carrying gold, and U-boat commanders were told to make them priority targets. Not only would sinking them reduce Britain’s ability to buy munitions and food but the plan was to return and salvage the gold after winning the war. Might this have been why the City of Benares was singled out from a convoy of 19 ships on that ghastly night?

Even today, it is shocking to read details of the sinking of the City of Benares, an 11,000-ton British liner hit by a German torpedo while carrying evacuees to Canada. For there is now strong evidence that, sealed inside her at the bottom of the sea, lies a cargo of gold. It all sounds like the plot of an Alistair MacLean thriller.

But I am in the offices of top City of London marine law firm, Campbell Johnston Clark, under conditions of strict confidentiality, inspecting what is perhaps the most valuable sunken treasure map of all time. It features wrecks all over the Atlantic. Many are already on nautical charts, as are the resting places of thousands of ships lost in two World Wars. But what no one has worked out, until now, is which of them were carrying gold, how much was on board and where it was stored. Without that information, any hit-and-miss salvage exercise would be a ruinous waste of time and money.

Armed with this fresh data, a pioneering £15 million recovery operation is due to get under way in a few weeks a few hundred miles west of Ireland. Using precision robotics rather than human divers, the salvage team will target a ‘cluster’ of three ships in one area, two from World War I and one from World War II, and cut into them. All lie in international waters. A second ‘cluster’ has been earmarked elsewhere. If the first three wrecks yield just half of what they are believed to contain, the result should be a jackpot for the investors, as well as for the taxman and for charities, too. Between them, they contain an estimated £750 million in gold. And once the amount of recovered gold hits a certain level, a percentage of profits will go to maritime causes.

But one decision has already been taken. ‘We will not touch the City of Benares,’ says Will Carrier, operations director of Britannia’s Gold, the company behind the project.

‘We will treat all these wrecks with respect but Benares is designated as a war grave and should be treated as such. It’s still a very sensitive subject.’

All British warships sunk since 1914 are classified as both war graves and sovereign territory. But most merchant wrecks have no such protection. And though the City of Benares was granted war grave status in recognition of its exceptionally tragic circumstances, the three ships earmarked for the initial ‘cluster’ were not.

Former diver Will Carrier has worked in ‘deep water robotics’ for 15 years. He was part of the team that helped raise the Kursk, the Russian submarine which sank with all hands in the Barents Sea in 2000. He says looking for Britain’s wartime gold is a lot easier than looking for wooden Spanish galleons that have often broken up by now. Steel-built 20th-century warships tend to be in one piece. The hard part is working out which wrecks to aim for and where the gold was actually stored within. And that is where 25 years of research kicks in.

This extraordinary detective story began in the early Nineties when a founder member of this secretive project was looking for World War I wrecks that had cargoes of copper and tin. While in the Public Records Office, going through a box of mariners’ wills, he found a folder which had been filed in the wrong place. A scribbled handwritten note on the front stated: ‘Publication of Gold Imports and Exports by the Bank of England’. Inside was a typed letter, written in 1915, from the Prime Minister’s senior economic adviser, George Paish, to the Chancellor of the Exchequer, Reginald McKenna. In it, Paish points out that two passenger liners heading for the U.S. with substantial amounts of gold on board had recently been torpedoed. On the very same day each one had set sail, he notes, the Bank of England had announced sales of large quantities of ‘foreign gold coin’. It turned out that it was standard Bank of England practice to inform the financial markets of gold sales on the day that the gold was shipped out. Using this publicly available information, German intelligence could then see which ships of a certain size and class were leaving the UK that day and target them. Eventually, the Bank of England stopped broadcasting gold sales.

The researchers decided this was a line of investigation worth pursuing, even though officialdom had tried to cover up its losses.

"The government didn’t want the public to find out how much of their money had been lost at sea,’ says Will Carrier. ‘We have even found documents alluding to the destruction of other documents about gold shipments."

Over time a picture started to emerge thanks to fresh discoveries in long-forgotten archives. In one, they found an invaluable register of all the ships authorised to carry gold at a particular time. Will takes me through a typical case study from 1915. Bank ledgers show that on one particular day, more than £1 million in gold belonging to the French government was sold via the Bank of England to Morgan Grenfell in New York, along with £1 million more from the Midland Bank.

One liner designated as a gold carrier left Britain that day . . . and it was torpedoed 48 hours later.

The ship’s inventory shows a small cargo of fish, steel, palm oil, soap and a mysterious final item — ‘quarries’. Finally, there is an insurance claim for its unremarkable cargo. Forget the fish and soap, the ‘quarries’ were valued at an astonishing £1 billion in today’s money. Another example is a World War II liner that left Glasgow soon after the benighted City of Benares. It was promptly attacked a few days into the Atlantic voyage, though nearly all 300 people on board were quickly rescued. Again, the archives show a small cargo valued at £29,000. Yet the war insurance payout was a thumping £550,000 back in 1940. And that only covers gold owned by private institutions. The government never insured its own gold. And a secret Bank of England memo suggests the ship was also carrying £4.5 million of government gold.

All told, that ship alone could contain anywhere up to £500 million in gold at today’s prices.

Will Carrier says one ship has already been explored by a foreign salvage team which failed to find any gold in the bullion room. ‘We tracked down the intelligence officer on that voyage — he’s now very elderly and lives in Australia — and he told us that when they got the gold on board, they sealed it up in a completely different part of the ship.’

There are also four promising cases, courtesy of the descendants of a U-boat commander who kept precise notes of his victims. Despite the potentially huge prizes, treasure-hunting is an costly business. A typical salvage ship can cost £100,000 a day and, even in good weather, it might take weeks to locate and penetrate a strongroom. The maritime world is full of tales of botched attempts to raise the wealth of Midas from the deep. That is why a consortium has been formed, involving marine and financial experts to raise the initial £15 million.

Philip Reid, a former banker with Merrill Lynch and a former chief executive of the National Research Development Corporation, is chairman. Hedge funds and City backers, he says, are coming on board, though he also wants to appeal to ordinary investors via the Government’s Enterprise Investment Scheme. ‘I know the risks because I lost £5,000 in a quest for sunken treasure in the Caribbean some years ago,’ says Philip. ‘There was meant to be a great pot of gold and they never found a thing. This is completely different because we have solid intelligence.’

He explains that the first portion of any recovery will go to the British Government since, having paid out all insurance claims, it is the owner of the cargo. After covering the operation’s costs, the rest will be shared among investors, with a percentage going to charities. How much the taxpayer gets will depend on the Government. Five years ago, the Department of Transport received a mere 20 per cent of £48 million of silver bullion recovered from the merchant ship SS Gairsoppa which sunk off Ireland in 1942 — but that arrangement has since been described as a ‘procedural error’. A spokesman says there is a temporary moratorium on salvage contracts. None of which prevents the Britannia’s Gold salvage team from setting sail. Under international maritime law, the company merely has to inform the owner of anything it brings to the surface, then agree a salvage fee for doing so.

Will Carrier says: ‘We’ll keep them fully informed as a courtesy. This is a British operation and we don’t want someone else taking what is British gold.’ For their part, government officials are waiting to see what emerges. But I suspect there’s a lingering sense of embarrassment that they don’t know the whereabouts of so much gold. In 1981, ministers commissioned a salvage operation which retrieved gold worth £40 million from the destroyer HMS Edinburgh, even though this, too, was a war grave. The vessel went down in the Arctic in 1942. The gold was Russia’s payment for war debts. Whitehall knew all about this valuable cargo because it had been travelling in a warship. But details of shipments in merchant vessels seem to have vanished in the fog of war — until now. No doubt if Britannia’s Gold start hauling up armfuls of shiny ingots, the Chancellor will soon be on the phone to arrange a deal.

Perhaps, one day, the Government might even approve an attempt to salvage the secret cargo from the tragic City of Benares. Considering the number of young lives lost, how apt if there was enough money down there to build a children’s hospital.