Curious Case of Wirecard Fraud

Curious Case of Wirecard Fraud

Wirecard, a German payment processing company, stated that €2 billion from its books were non-existent. The fraud amount in Indian rupees is to the tune of more than ₹15,000 crores and when compared to other infamous scams of India like the Vijay Mallya, PNB and Nirav Modi, or even Rana Kapoor, Wirecard turns out to be clear winner. With what could be the fraud of the year, let’s find out how an entity based in a developed financial market carried out this fraud.

Crux of the Matter

Wirecard was established in 1999 as a payment processing industry in Germany. To expand its business, Wirecard wanted a license to issue prepaid bank cards in the Hong Kong region. But getting a license proved to be a tough nut for the company as the Hong Kong Monetary Authority demanded significant business revenue to consider the application. As the company didn’t have enough revenue, its Asia-pacific team was set on a task to convince regulators at the Hong Kong Monetary Authority.

Inflating Books & Incoming Probe
To acquire the license, Wirecard manipulated its accounts. The Parent company in Germany pumped money through opaque transactions to show that these funds are being paid by external customers. To put it simply, money flew from Germany to Asia and then back to Germany, completing a whole circle and indicating that the transactions were made by third parties. By doing so, accounts will show the Asian wing’s performance up to par.

Financial Times (FT) was investigating the matter and had sent some information to the compliance staff of Wirecard in 2019. The company’s compliance staff found that the claims of whistleblowers were credible and launched an investigation with the codename: project Tiger. Rajah & Tann (R&T), a Singapore based company wrote a 30-page report accusing Wirecard’s Asian wing of forgery, cheating, criminal breach of trust, corruption, money laundering, etc.

First Investigation Closed
To save the company’s tarnished image after this report got published, the parent company in Germany remained defiant and sued FT. Wirecard CEO Markus Braun rebuked the investigative stories, saying “there are personal animosities between employees involved”. FT got an order to stop the investigation and somehow this accounting deviance was normalized.

Relentless FT
FT, on the other hand, continued its investigation, albeit on a slightly different matter. While researching, they found that accounts with no physical presence were in business with Wirecard. Transfers were processing payments from gambling and adult websites. Moreover, such fake transfers accounted for nearly half of sales in 2018. FT wrote about it and the report went live. When Germany’s financial regulator BaFin should have intervened in the matter, it responded very oppositely and sued FT reporters including lead investigative journalist McCrum. BaFin had its own agenda i.e. to protect Germany’s pride as Wirecard is among the top 30 companies in terms of valuation listed on the Germand stock exchange DAX.

Chickens Come Home To Roost
Recently, auditor KPMG said it could not corroborate suspected accounts as it had no access to several documents. It announced missing €2 bn. And after 3 days of the auditor’s
announcement, the company said that cash never existed. CEO Markus Baum was arrested.

  • Wirecard was one of Germany’s Top 30 most valuable companies on the German stock market (DAX) and has been ranked in the “Top 100 Most Innovative Growth Companies in the World” by Forbes Magazine.
  • On 30 January 2019, Wirecard shares plunged after the Financial Times reported that a senior executive was suspected of falsification of accounts and money laundering in the company’s Asia-Pacific operations. Wirecard issued a statement calling the report “false, inaccurate, misleading and defamatory.” Wirecard also announced a lawsuit against the Financial Times for “unethical reporting” and a lawsuit for market manipulation.
  • Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. At the end of 2001, it was revealed that Enron’s reported financial condition was sustained by an institutionalized, systemic, and creatively planned accounting fraud, known since as the Enron scandal.