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How Wirecard could Scam the World and get Away for so many Years

How could Wirecard possibly invent billions in profits and falsify the balance sheets? Did the regulators fail? There have been reports of manipulations at the DAX company for years

The British “Financial Times” (FT) has long had its own dossier on its website. Under “Inside Wirecard” the years of research of their reporters are listed who told repeatedly about evidence of trickery, opaque financial flows and possible accounting fraud since 2015. 

Wirecard called this “false and misleading claims” or “inaccurate, misleading and defamatory” according to media reports. Auditors and financial regulators apparently haven’t looked closely for years on the contrary, they took action against FT journalists instead.

The regulatory authority BaFin filed criminal charges against two FT reporters and several exchange traders in April last year. Reason: With the disclosure stories, they would have triggered a price slide at Wirecard, in order to then be able to enrich themselves with the help of brokers by betting on falling prices. The prosecutor launched an investigation into market manipulation and Wirecard was able to stage itself again as the victim of a conspiracy.

Dubious Events in the Philippines

Only a few days ago , the alleged dizziness was exposed. The Wirecard board of directors conceded that an alleged trust account balance at two Philippine banks of more than 1.9 billion euros probably does not exist. The board of the Philippine BDO Unibank had previously informed the auditors Ernst & Young (EY) that the certificate was obviously falsified.

Regardless of the question of why a DAX company could store a quarter of its total assets in the Philippines, the events and the people involved appear extremely dubious. First, a company called Citadelle Corporate Services is said to have managed the alleged Wirecard assets there. But the contract was terminated in late 2019. It is not known why but the managing director is in hiding, reporters from the “Wirtschaftswoche” tried unsuccessfully to track him down for weeks.

Wirecard trustee with a dubious past

Then the Filipino lawyer Mark Tolentino appeared as a trustee. He used to work in the Ministry of Transport and was released two years ago by President Rodrigo Duterte on personal orders for alleged irregularities. Even Tolentino, who answered legal questions from his more than 100,000 subscribers and followers in videos on Facebook and YouTube just a few days ago, has been unreachable since the Wirecard scandal.

Filipino lawyer Mark Tolentino was listed as Wirecard's trustee. The former YouTube star has disappeared since the balance sheet scandal was exposed. | Image source: Screenshot youtube

Filipino lawyer Mark Tolentino was listed as Wirecard’s trustee. The former YouTube star has disappeared since the balance sheet scandal was exposed. | Image source: Screenshot youtube

It is also extremely opaque how Wirecard would like to have made profits in recent years. Basically, the company earns from processing cashless payments. They receive a commission for forwarding money from the end customer to the provider. The customers who use Wirecard’s services are not only many retailers, but also groups such as ALDI, BASF and Ikea.

The entire Wirecard profit comes from only three partners

As research by the “Financial Times” showed last year, almost the entire alleged Wirecard profit comes from the business with three partners: a company called Al Alam from Dubai, Pay Easy Solutions from Manila and Senjo in Singapore.

Al Alam, which is said to have provided more than half of the profit, was surprisingly dissolved in May but Wirecard is silent about who ran the company and why they should have brought in so much money.

It was a scam from Day 1

Al Alam was based in a skyscraper in the Dubai Internet City - a company that is said to have generated more than half of the Wirecard profit. | Image source: picture alliance / imageBROKER

Al Alam was based in a skyscraper in the Dubai Internet City – a company that is said to have generated more than half of the Wirecard profit. | Image source: picture alliance / imageBROKER

The address of a bus company

According to FT, Pay Easy Solutions is registered at the same address as a bus company called Fröhlich Tours – Christopher Bauer, a former German board member of Wirecard Asia Pacific, is the managing director of both companies.

At Senjo in Singapore, Rajaratnam Shanmugaratnam worked for a year as a director after “Wirtschaftswoche” research and is still managed as “Secretary” at a Senjo subsidiary – which is piquant because Shanmugaratnam is also the managing director of Citadelle and the former Filipino Wirecard trustee is registered.

His name has been reported to appear over and over again in connection with dubious Wirecard transactions for years, for the first time in court documents relating to a Wirecard deals from 2015.

Wirecard provided supervision for years

Wirecard has been suspected of falsifying the balance sheets for at least five years. However, the EY auditors and the BaFin financial regulator let them do it. BaFin boss Felix Hufeld now speaks of a “complete disaster” and is self-critical: “We have not been effective enough to prevent this from happening,” he said on Tuesday. His authority told German media : “Once the facts have been finally clarified, BaFin, along with other private and public bodies, must ask how its supervisory measures could have been made more effective.”

BaFin refers to its responsibilities and competencies. It only oversees Wirecard Bank, not the entire group. Therefore, they have “no formal examination rights with regard to the dubious Asian business of the group”. Due to the strong growth and changing legal requirements, the federal authority now wants to review “how Wirecard AG as a group can be effectively supervised”.

In 2019, BaFin still protected Wirecard

In doing so, BaFin can crack down hard. In spring 2019, the “Financial Times” reported inconsistencies in Wirecard’s Asian business. Employees have forged contracts, backdated or even invented them freely. When the Wirecard share price tumbled, BaFin used one of its sharpest means: In close coordination with the European securities regulator ESMA, it had a Europe-wide short sale ban. This had only happened in the financial crisis after the bankruptcy of the US bank Lehman Brothers in 2008.

The trigger for the ban was a call to the public prosecutor’s office in Munich, Wirecard would be blackmailed. The call came from “Wirecard’s legal representative”, as the public prosecutor confirmed to German media . “A file note was made about this conversation, which, as is customary in comparable cases, was also made available to BaFin. The BaFin was therefore also aware of who sent the notice.” The BaFin approach looked “as if a protective wall was being built around Wirecard,” wrote the “Süddeutsche Zeitung”.

Immediately before his resignation as Wirecard boss, Markus Braun sold shares worth 155 million euros. | Image source: dpa

Immediately before his resignation as Wirecard boss, Markus Braun sold shares worth 155 million euros. | Image source: dpa

Politics demands consequences for BaFin

The Bundestag Finance Committee wants to deal with the role of financial supervision before the summer break. “If the BaFin president already speaks of a scandal, this must also have consequences for his authority,” said committee chair Katja Hessel (FDP) of the Funke media group. The Left Party went even further: “Personnel consequences at the top of BaFin must also be examined,” said Group Vice-President Fabio de Masi.

The retired Wirecard boss Markus Brown now has to answer allegations of accounting fraud and market manipulation. The five million euro bail for his release from pre-trial detention was no problem for him: he sold a large part of his Wirecard shares immediately before his resignation. In a series of sales on Thursday and Friday, he generated a total of 155 million euros, as Wirecard announced in several ad hoc notices on Tuesday evening.

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Reporting mainly on the Asia Pacific region and the global Coronavirus crises in countries such as the United States, Mainland China, Brazil, Mexico, Italy and Germany. Love to Travel and report daily on destinations reopening with a focus on Domestic travel within Europe, North America and the Caribbean. Fan of the English Premier League , the German Bundesliga,, the Spanish La Liga.

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