Reuters
German payments provider Wirecard filed
for insolvency on June 25, 2020, just days after admitting €1.9 billion (RM9.1
billion) missing from its accounts.
What does Wirecard do?
At its heart, Wirecard is a payments
processor, offering companies services allowing them to accept credit cards and
digital payments like Apple Pay or Paypal in stores, online or on mobile.
The company collects a commission for
ensuring that merchants will receive the money they are owed.
Beyond that, it sells to its customers
extra services like analytics based on the data generated from those
transactions that it says can help boost sales and track trends.
Wirecard claims around 300,000 firms
worldwide as customers and deals with giants in the sector like China’s AliPay
and WeChat, Apple and Google.
How did Wirecard make it big?
Wirecard was founded in 1999, starting
out offering its services to porn and gambling sites.Such stable revenue
streams helped it survive the early-2000s dotcom crisis, and as more savoury
forms of online commerce ramped up through the 2000s and 2010s, the Group’s
star rose.
In the early days, CEO Markus Braun
increased his stake to 7 per cent, becoming the largest shareholder.
Wirecard had clients like KLM, Deutsche
Telekom and FedEx on its website.
First listed on the Frankfurt stock exchange
in 2005, by 2018 it elbowed traditional lender Commerzbank out of the blue-chip
DAX share index.
In early 2019, Wirecard’s market value
hit around €17 billion, matching crisis-ridden Deutsche Bank with 15 times
fewer workers and revenues.Revelations in June 2020 collapsed its value to
around €350 million.
Why weren’t weak spots uncovered?
Beginning in January 2019, a string of
Financial Times reports highlighted accounting irregularities, notably in
Wirecard’s Asian division. Bosses denied any wrongdoing and the German
financial world appeared to close ranks around its favourite.
Markets watchdog BaFin, the German
Securities and Exchange Commission, announced a probe into potential links
between the FT and short sellers betting against Wirecard stock. The hammer
blow came when auditors Ernst & Young said they were unable to find €1.9
billion of cash meant to be sitting in trustee accounts at two Philippine
banks. The fact the regulator did not catch the scandal sooner was a “disaster”.
Wirecard’s status as a Payment Service
Provider (PSP) subjected it to multiple EU directives since 2008 obliging it to
better fight payment fraud, but companies are not subject to as much scrutiny
over their accounting practices.
Who controls Wirecard?
Wirecard has been run by Austrian
computer scientist Braun since 2002.
He resigned abruptly after the company was
forced to acknowledge the missing cash. He was detained after Munich
prosecutors accused him of market manipulation and falsifying accounts. Braun
turned himself in and was freed on a €5 million bail. American James Freis is
serving as Wirecard’s interim CEO.
Chief operating officer and management
board member Jan Marsalek meanwhile was dismissed, with media reports placing
him in the Philippines.
Braun and other senior board members
were already under investigation by Munich prosecutors over “market manipulation”
relating to how they presented updates of KPMG audit findings of their old
accounts.
Who is behind the missing cash?
German news weekly Der Spiegel named
Mark Tolentino, a lawyer working in the Philippines, as the trustee responsible
for the missing cash. Based in Philippine financial centre Makati City, his
website vanished, although a Facebook page with public legal Q+A video sessions
remained online.
Meanwhile one of Philippines largest
banks — BPI — where some of the missing money was supposedly deposited —
confirmed to AFP that an employee was on “preventive suspension”. Media have
reported that an assistant manager at BPI signed a forged document relating to
the supposed deposits at the bank.
It is not just BaFin that needs to stand
up to scrutiny, analysts say. There are also questions about why EY, Wirecard’s
long-time auditor, didn’t pick up on accounting irregularities that date back
years.
EY has faced mounting legal pressure
over its auditing of Wirecard’s accounts. German shareholders’ association SdK
has filed a criminal complaint against Wirecard’s auditors. The complaint
targets two current employees and one former staff member at EY.
It comes after law firm Schirp & Partner
brought a class action lawsuit against the firm on behalf of Wirecard
investors, alleging it failed to flag improperly booked payments on Wirecard’s
2018 accounts.
“There are clear indications that this
was an elaborate and sophisticated fraud, involving multiple parties around the
world in different institutions, with a deliberate aim of deception,” EY said
in a statement. “Collusive frauds designed to deceive investors and the public
often involve extensive efforts to create a false documentary trail.
Professional standards recognize that even the most robust and extended audit
procedures may not uncover a collusive fraud.”
The upshot of the matter is it can
happen anywhere—Germany, U.S., India, Malaysia (1MDB), China or the U.K. What
matters is how it is dealt with and what mechanisms are introduced to improve
governance and prevent a recurrence. That’s the difference between a more
developed economy and one that is not.
Reference:
1.
Five
things to know about the Wirecard scandal, 25 Jun 2020, Malay Mail
2.
‘The
Enron of Germany’: Wirecard scandal casts a shadow on corporate governance, 29
Jun 2020, CNBC
3.
The
Weird, Extremely German Origins of the Wirecard Scandal, 21 April 2021, The New
Republic
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