Germany's Wirecard Scandal The largest accounting fraud in the country's postwar history.

• Author: Engelen, Klaus C.

While all of Europe is still in the grip of the worst pandemic in a century, Germany's political and financial establishments are also haunted by the Wirecard AG scandal. It is turning out to be the largest case of accounting fraud in the country's post-war history. The sad story is that most of the political and financial establishments at all levels aided and abetted the mega-fraud.

On June 25, 2020, Wirecard, a darling of investors for years, filed for insolvency after revelations that [euro]1.9 billion ($2.14 billion) was "missing" from its balance sheet, supposedly deposited in escrow accounts at two reputable Philippine banks.

The Wirecard scandal marks the first time that a member of the DAX, the blue-chip index of now forty major German companies trading on the Frankfurt stock exchange, has gone broke. When Wirecard took the place of Commerzbank AG in the DAX in September 2018, the fintech's shares were worth about [euro]20 billion.

Its Austrian CEO Markus Braun, who owned 7 percent of Wirecard, was a billionaire. Now Braun (51) is in detention awaiting trial with two other company executives. His second-incommand Jan Marsalek (40), also Austrian, who was in charge of the company's Asian business, has vanished, and is pictured on a Europewide police search list.

Wirecard, based in Aschheim near Munich, is now an insolvent global payments company that operated largely behind the scenes of online commerce. Founded in 1999, the company started by processing payments for gambling and pornography, before offering its customers in many regions of the world electronic payment transaction services as well as the issuing of physical cards. According to its promotion material, Wirecard authorized and processed payments for about 280,000 merchants, issued credit and prepaid cards, and provided technology for contactless smartphone payments. Clients included German discounters Aldi and Lidl as well as nearly one hundred airlines. Since January 2006, the group included a bank with a full German banking license. At its peak, Wirecard had 5,300 employees.

"Over the past decade Wirecard has fueled its expansion by buying smaller payment processing businesses and groups of customers around the world, including a 2017 move to take on 20,000 merchant clients of Citibank, spread over eleven Asia-Pacific countries," reported the Financial Times. "The deal was intended to make the company a household name across the region."

FINANCIAL TIMES KEPT DIGGING

After the Financial Times began raising grave questions about Wirecard's accounting practices, the company cast such criticism of its global business model as the work of market manipulators and their journalistic helpers. When Dan McCrum, who led the Financial Times investigation on Wirecard along with his colleague Stefania Palma, published his story "Wirecard's suspect accounting practices revealed" on October 15, 2019, the headline should have been an alert to Germany's supervising agencies and institutions and a wake-up call to investors and creditors. "Internal company spreadsheets, along with related correspondence between senior members of Wirecard's finance team, appear to indicate a concerted effort to fraudulently inflate sales and profits at Wirecard businesses in Dubai and Ireland, as well as to potentially mislead EY...