How Germany’s fraudulent fintech star was exposed – DW – 12/07/2022
Wirecard CEO Markus Braun was the “Godfather” of an elaborate scheme to defraud investors in fintech star Wirecard, a former German lawmaker told DW ahead of the opening of a trial against the scandal on Thursday.
Fabio De Masi, a former lawmaker for Germany’s Socialist Left Party (called Die Linke in German) who sat on a parliamentary inquiry into the Wirecard case, said “Mr. Braun was not a victim, but the godfather of the criminal operation.”
De Masi recalled Parliament’s 675-page report on Wirecard, published last year, which found that Braun was involved in signing over funds to third-party firms despite warnings that he was giving away “the last liquidity to Wirecard”.
What was Wirecard?
Wirecard was once the poster child for Germany’s fintech sector. The firm began life in 1999 as an online payment processor for porn and gambling sites and grew a steady stream of revenue that helped it survive the dot-com bust. The company built up a wider base of private customers thanks to the global boom in online shopping and later mobile payments.
Under CEO Markus Braun, a former KMPG consultant who joined in 2002, the company grew at breakneck speed, gobbling up smaller payments firms and expanding into banking. It even launched a joint venture with China’s e-commerce giant Alipay to allow Chinese tourists to pay for goods and services while abroad.
Wirecard was listed on the Frankfurt stock exchange in 2005 and 13 years later the traditional lender Commerzbank was kicked out of the DAX index. At its peak, the company was valued at more than 24 billion euros ($25 billion), dwarfing even Deutsche Bank.
What led to Wirecard?
In 2016, US financial research firm Zatarra released a negative report on Wirecard, alleging fraudulent activity at the firm. It accused senior executives of committing money laundering and fraud against Visa and Mastercard.
Three years later, Financial Times Journalist Dan McCrum addressed the scandal and alleged accounting irregularities at Wirecard’s Asian units in a series of articles.
In June 2020, the company admitted to auditor EY that €1.9 billion in cash meant to be held in two Philippine accounts probably did not exist. Wirecard’s share price fell by 99% and it became the first DAX company to file for insolvency, owing creditors almost €4 billion.
An FT investigation found that third-party acquirers (TPAs) – businesses that processed payments for Wirecard where they lacked their own license to operate – accounted for around half of Wirecard’s reported revenue and a large portion of its profits. But an address to such a company led to a family home in the Philippines. Another was a bus company in Manila.
Wirecard’s auditor EY, which signed off on the firm’s accounts for a decade, also faced sharp criticism and is now being sued by Wirecard shareholders. EY has said they acted professionally.
The government of then-Chancellor Angela Merkel briefly considered rescuing the company, and her then-Finance Minister, now Chancellor, Olaf Scholz, was censured for baffling oversight of the company. Scholz told a parliamentary inquiry that most of the fraud occurred before his tenure.
The scandal also revealed that the German market regulator BaFin had not only failed to detect the fraud – despite suspicions raised by investigative journalists and financial market analysts – it filed criminal complaints against two FT journalists, alleging market manipulation, which were later dropped.
De Masi told DW that the official reaction to the negative media reports was “scandalous,” with the attorney general initiating a short-selling ban on Wirecard shares “based on a wild conspiracy theory that Bloomberg conspired to blackmail Wirecard.”
The embarrassment forced the head of BaFin and the head of Germany’s accounting watchdog to resign and even spawned a Netflix documentary, narrated by McCrum.
“Many would not believe that fraudsters were at work at Wirecard,” Volker Bruehl, a professor at the Center for Financial Studies in Frankfurt, told Agence France-Presse.
What is the trial about?
Braun and two other senior Wirecard executives go on trial in Munich on Thursday, accused of boosting earnings through fictitious transactions involving a complex web of subsidiaries and partner companies.
Oliver Bellenhaus, the former head of Wirecard’s Dubai subsidiary, and Stephan von Erffa, another former executive, are also accused.
Prosecutors will allege the trio presented inaccurate financial results for 2015-2018 by including income from TPA companies in Dubai, the Philippines and Singapore that “didn’t actually exist”.
The three men could face up to 15 years in prison if convicted of multiple charges, including fraud and market manipulation.
Braun, who has been in custody since the summer of 2020, denies any wrongdoing and accuses others of running a shadow operation without his knowledge.
The prosecution has said that Wirecard’s management has invented huge sums of phantom income to deceive investors and creditors.
Prosecutors have written a 474-page indictment, after hundreds of interviews, dozens of property searches and after sifting through 42 terabytes of data.
Authorities in more than two dozen countries participated, from Switzerland to Singapore, Austria, the Philippines, the United Kingdom and Russia.
A verdict is not expected until 2024 at the earliest.
“In my view, Wirecard was a large money laundering entity with close ties to organized crime and secret services. The third party companies (TPAs) were not just shell companies with fraudulent transactions, they outsourced legal risk from Wirecard by recycling dirty money,” De Masi told DW.
One of the accused is still on the run
The Wirecard case will not be complete without the testimony of former Chief Operating Officer Jan Marsalek whom Braun has painted as the mastermind behind the fraud.
Marsalek disappeared as the scandal unfolded by faking an elaborate escape to China via the Philippines while in reality he was on his way to Moscow via Belarus on a private jet.
He remains on Europol’s wanted list and is believed to be living under a new identity in Moscow protected by the Kremlin, having been helped to disappear by a former Austrian intelligence officer and a far-right politician.
With his connections to Russian intelligence agencies and his one-off attempt to assemble a Libyan militia, the party-loving Marsalek remains shrouded in mystery.
Edited by: Ashutosh Pandey
